Answer :
A firm has no obligation to pay dividends (C) is not an advantage in equity financing.
Equity financing is a capital raising activity by exchanging the company's equity to earn additional financing. Equity financing occurs when a company sell its equity instruments. Whena company choose to do equity financing, its equity and ownership proportions will change. Equity financing might come in vary types:
- Angel investors
- Crowdfunding platforms
- Venture capital firms
- Corporate investors
- Initial Public Offerings (IPOs)
Equity financing have several advantages. Equity financing is a good funding source without having to put the company's debt ratio at risk. Equity financing is less risky because the company does not have any obligations to pay back to its equity owners. Equity financing also has unlimited maturity date, letting the company to focus on utilizing the available funds.
Equity financing also give an opportunity for a company to learn from its investors. Many successfull investors are interested in investing through equity financing, these investors are willing to be involved in the company's operation and are personally motivated to contribute to a company's growth.
However, with the change in the company's ownership structures, the company has to give some proportions of its profits to the equity ownership in the form of dividends. Some equity owners with big proportions are also concerns about their controls over the company. When deciding on equity financing, a company's owner has to give up some portions of his ownership and control.
Dividend given to the equity owners are not tax-deductible expenses, but interest payment are eligible for tax benefits. Some equity owners tend to ask a higher rate of return than lenders, making equity financing become more costly than debt financing.
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