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Capital structure and finance costs

Sources of finance

1.1 Capital structure

The content of this chapter focusses upon limited liability companies. All companies
have to be financed, regardless of the type of company that they are. Finance is
provided by capital investment in the company, either in the form of debt (loan)
capital or equity (share) capital. Capital is something that on its own has little or no
use but can be employed in the generation of wealth.

Debt Equity

Holder of debt is entitled Equity holder is not
to some form of entitled to any
mandatory repayment. repayment. Instead they
e.g. interest, repayment share the ‘residual
of capital. assets’ of the business
when it ceases to trade.

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