Equity Finance an internal or external source?

[olliesfield]

I have the ATAR notes business studies book, in the external sources of finance section it has shares and private equity as an external source of finance however in the planning and implementing section it has EQUITY FINANCE: money lent INTERNALLY in exchange for ownership rights, this includes start up capital and issuing of shares.

I am very confused, is issuing of shares internal or external source of finance?

[Essej]

I have the ATAR notes business studies book, in the external sources of finance section it has shares and private equity as an external source of finance however in the planning and implementing section it has EQUITY FINANCE: money lent INTERNALLY in exchange for ownership rights, this includes start up capital and issuing of shares.

I am very confused, is issuing of shares internal or external source of finance?

Hi Ollie!

Trust in Andrew's notes! Share capital, whether private or public via the ASX is a form of external equity finance. This is because the business offers partial ownership to shareholders outside the business.
I understand this may be confusing because a) the partial owner is now considered a stakeholder in the business and b) equity finance such as a rights issue is technically utilising current stakeholders to raise funds.

What is important to remember is that internal finance is sourced directly from within the business ie retained profits whereas external finance involves any use of an external party or intermediary (such as the ASX) to gain funds.

Hope this helps

[RuiAce]

Not sure if you realised but your poll has the options "yes" and "no" which don't make sense.

But as already mentioned, I would say external for the exact same reasons.

[olliesfield]

That makes sense but then how come it says equity financing is money lent internally, including start up capital and issuing of shares? Wouldn't issuing of shares be external?  Thanks Ollie

[Emerald99]

Maybe it was a typo and he meant owner's equity? Thats the funds contributed by the owner so therefore its leant internally and its these owner's who issue private shares thats why its internal? Sorry I'm not sure