[KNOWLEDGE] – Forms of raising capital of enterprises

In the current production and business activities, the need to increase capital and expand the market is an urgent need to increase enterprises’ integration and competitiveness. Depending on the business model and specific characteristics, each enterprise may have different methods of capital creation and mobilization…So what form can the enterprise raise capital in?

The most popular forms of capital mobilization of enterprises today are:

– Raising equity from Initial capital contribution; undivided profits; capital from the issue of shares.

– Mobilizing debt capital from Bank credit; business credit; release Stock.

1. Initial capital contribution

Initial contributed capital is the capital formed by the owners’ contribution when establishing the business. The form of ownership will determine the nature and structure of capital creation of the enterprise itself. For State-owned enterprises, the initial capital contribution is the State’s investment capital. For a private enterprise, the initial contributed capital is the investment capital of the owner of the private enterprise registered by the business owner. For limited liability companies and partnerships, the initial capital contribution is the total value of capital contributed by members committed to contributing to the company. For a joint-stock company, the initial contributed capital is the total par value of shares of all kinds which have been registered for purchase and recorded in the company’s charter.

2. Raising capital from undivided profits 

Capital accumulated from undivided profits is a portion of profits used for reinvestment. For SOEs, the reinvestment depends not only on the earnings of the enterprise itself but also on the reinvestment policy of the State. For joint stock companies: When the company leaves a part of profits for reinvestment, i.e. does not use that profit to pay dividends, shareholders do not receive bonuses but instead, have the right to own additional share capital of the company.

​3. Raising capital from issuing shares

According to Clause 2, Article 4 of the Law on Securities 2019, shares are understood as a type of security certifying the lawful rights and interests of the owner to a portion of the share capital of the issuing organization.

4. Mobilizing capital by bank credit

Bank credit is an asset transaction between a bank and a borrower in which the bank transfers the property to the borrower for use within a certain period as agreed upon, and the borrower is responsible for repaying the loan conditions both principal and interest to the Bank when the payment is due. Bank credit has many forms such as installment credit contracts, loans according to credit terms, revolving credit agreements, long-term investment loans, etc.

5. Raising capital by commercial credit

Trade credit is a credit relationship between enterprises directly engaged in production and business activities in the form of goods purchased and sale on credit. There are three types of trade credit:

- Trade credit granted to importers (referred to as export credit) is a type of credit granted by exporters to importers to promote the export of goods.

- Trade credit granted to exporters (referred to as import credit) is a type of credit granted by importers to exporters for convenient import of goods.

- Broker credit is granted to exporters and importers, large commercial banks usually do not provide credit directly to importers and exporters but through brokers.

6. Raising capital by issuing bonds

Bonds are securities that confirm the owner’s legitimate rights and interests to a portion of the debt capital of the issuing organization. An enterprise is a company that can use the form of bond issuance to borrow medium and long-term capital in the market to meet its business capital needs. The relationship between bondholders and the company is that of creditors and debtors.

This is a profitable method of raising capital for the company when it needs to raise long-term capital with an appropriate interest rate lower than a bank loan but higher than a savings deposit to attract investors. Issuing bonds helps businesses raise capital without intermediaries fees. Enterprises can issue two types of bonds: Non-convertible bonds (ordinary bonds); convertible bonds.

A joint-stock company has the right to issue all types of bonds, including bonds of other types, by the law and the company’s charter. A limited liability company may only issue non-convertible bonds.

Capital is considered the backbone and concern of all businesses. Understanding that, Indochina Holdings provides investment promotion services - capital mobilization. We have a professional team with many years of experience in the field of investment promotion, always in the spirit of "side by side" with your business in all markets.