Popular forms of capital mobilization for businesses

Enterprises can use different forms of capital mobilization to maintain and develop production and business activities. In the article below, let's learn with 1C Vietnam about 9 popular forms of capital mobilization that businesses can apply.

1. Mobilize initial capital contribution

Mobilizing initial capital contributions is a form of capital contributed by the owners of the business when it is first established. The nature and method of capital creation of a business is determined by the business ownership model, specifically:

• State-owned enterprises: Initial capital is the investment capital of the State.
• Private enterprise: Business owners need to have enough minimum capital as prescribed by law to be able to register to establish a business.
• Joint stock company: Initial capital will be contributed by shareholders, this capital is the deciding factor whether the company is established or not. Each shareholder will act as a business owner, responsible for debts and property obligations equivalent to the value of shares held.

The initial form of capital mobilization is formed by the owners of the enterprise contributing capital when newly established

2. Mobilize capital from undivided profits

Raising capital from undivided profits is one of the most popular forms of capital mobilization. Capital from accumulated undivided profits will often be used for reinvestment, specifically:

• State-owned enterprises: Reinvestment depends not only on the profitability of the enterprise but also on the State's reinvestment policy.
• Joint stock company: When a joint stock company uses the method of raising capital from undivided profits, it means that the company does not use all profits to divide profits according to shares but retains an amount to increase share capital. for reinvestment activities. Shareholders will not receive dividends but in return can own the increased capital.

Capital from accumulated undivided profits will often be used for reinvestment

Normally, the amount of capital from initial capital mobilization and undivided profit capital is not enough for reinvestment, so companies often use additional forms of capital mobilization such as borrowing, issuing stocks and bonds. .

3. Borrow money from individuals and organizations

In forms of capital mobilization, borrowing money from personal and organizational relationships is often chosen by businesses because of its speed and unlimited amount of loan capital. This loan relationship is often carried out on the basis of civil law, relationships of acquaintance, trust, and intimacy between individuals and organizations. The conditions are very simple, as long as there is a property loan contract, a business can borrow capital from another individual or organization.

Borrowing money from individuals or organizations is also a form of capital mobilization that businesses can consider

This form of capital mobilization is often seen in parent companies and subsidiaries of corporations. This is considered a borrowing activity according to civil property regulations, not for business purposes and businesses usually do not do it regularly. This borrowing activity needs to be clearly distinguished from the form of credit granting and professional lending activities from commercial banks and other non-bank credit institutions.

4. Call for capital using commercial credit

The method of mobilizing capital from commercial credit institutions is defined as a credit relationship between business enterprises in the form of buying and selling debt of goods. There are 3 common types of commercial credit as follows:

• Trade credit for importing businesses: A type of credit provided by an exporting company to an importing company to promote export activities.
• Trade credit for exporting enterprises: A type of credit provided by importing companies to exporting companies to promote import activities.
• Brokerage credit granted to importers and exporters: This is a type in which large commercial banks will often grant credit to brokers instead of directly to import-export companies.

Call for capital using commercial credit

The existence of this capital mobilization method allows businesses to proactively seek and exploit capital sources to serve business activities. Capital from trade credit activities is not only meaningful to businesses but also plays an important role in the entire economy.

5. Call for capital using bank credit

Mobilizing capital from bank credit is considered the optimal solution to help ensure production and business activities of enterprises. Businesses can mobilize capital in the form of mortgage loans or unsecured loans. At that time, the business will need to repay both principal and interest to the bank when the payment is due according to the prescribed terms. Bank credit is expressed in forms including credit limit loans, long-term investment loans, revolving credit agreements, one-time credit contracts,...

Businesses can mobilize capital in the form of mortgage loans or unsecured loans

Most banks or lending businesses today have loan packages with incentives and attractive interest rates to support businesses expanding their business scale. However, when businesses decide to borrow, they need to have a clear repayment plan to avoid not being able to pay their debts.

6. Mobilize capital by issuing bonds

One of the other forms of capital mobilization that also brings many benefits to businesses is issuing bonds. Bonds are defined as securities issued by businesses to investors with a term of 1 year or more. Enterprises must commit to fully fulfilling their obligations (if any) and paying both principal and interest to investors.

Bonds are defined as securities issued by businesses to investors with a term of 1 year or more

Types of businesses eligible for bond issuance include joint stock companies and limited liability companies established and operated in accordance with Vietnamese law.

7. Mobilize capital by issuing shares

Besides bonds, companies can also raise capital from issuing shares. Stocks are considered a form of securities based on the content of Clause 2, Article 4 of the Securities Law 2019. Accordingly, stock owners will have legal benefits corresponding to the value of the shares that they own. they bought.

Stocks are considered a form of securities

To be able to issue shares to raise capital, businesses need to meet the following conditions:

• Enterprises need to prove that they have been in business for 5 consecutive years before registering and must be profitable and have no accumulated losses up to the year of registration.
• Enterprises must be approved by the General Meeting of Shareholders on issues related to the plan to use the capital obtained, the plan to issue shares,...
• Enterprises must have charter capital worth 10 billion or more at the time of issuance and want to offer shares on the market. This data is recorded from the actual value on the enterprise's accounting books.
• When the company sells shares on the market, it must commit to market transactions within 1 year. After the end of the offering, it must be approved by the General Meeting of Shareholders.

8. Call capital from investment funds

In fact, calling capital from investment funds is an option worth considering. Capital contribution activities are based on the terms and conditions of the fund that the business accepts.

Capital contribution is based on the terms and conditions of the fund to which the business is accepted

9. Possible risks from various forms of capital mobilization

Most businesses must use external forms of capital mobilization, but these methods still have the following potential risks:

• If businesses do not comply with regulations, this can lead to heavy legal consequences or losses.
• If a business depends on a single source of capital, the situation that this source of capital can no longer be maintained can cause difficulties or even lead to the collapse of the business due to lack of capital.
• Disputes related to loan agreements and share purchases can arise from agreements between businesses and investors if both parties do not prepare carefully.
• When borrowing capital, businesses have to face interest rate fluctuations. A sudden increase in interest rates will increase borrowing costs and may affect business profits.

Forms of capital mobilization still have some potential risks

The diversity of capital mobilization forms helps businesses be more proactive in preparing money for business activities. However, to minimize possible risks during the mobilization process, businesses should seek the support of financial and legal consultants. Don't forget to follow other articles on 1C Vietnam's website to update useful information about corporate governance!