methods of raising capital for llc and co operatives

Methods of raising capital for LLC & Cooperatives

Section 9 Objective 4

Describe the various methods of raising capital available to limited liability companies and co-operatives

Methods of raising capital for LLC and Co-operatives

The capital of LLC and Co-operatives organisations is raised by the issue of shares • In private companies they are sold to family

members, business partners and sometimes employees

• In public companies for LLC they are offered to the public for sale

Methods of raising capital for LLC and Cooperatives

• Instead of raising capital by issuing additional shares, LLCs may secure debt capital through agencies for debentures or bank loans

• Some co-operatives on the other hand offer loans• Another form of additional capital for both types of

organisations is the yearly increase of reserves (funds set aside for a specific purpose) and income known as – retained earnings for companies and undistributed surplus

for co-operatives


• LLC-Methods of raising capital – Equity- Preference Shares• Before shares are issued or raised by LLC, they must have the

amount of capital a company can issue. This is known as authorised share capital

• Preference shares are of two types, cumulative and non-cumulative.

• They are placed by LLCs to appeal to potential investors because provisions are made for them to have priority over common stock is certain areas such as– Distribution of dividends – In the event of bankruptcy

Methods of raising capital• – Equity – Ordinary shares• Dividends are paid to ordinary shareholders after

preference shareholders• These are known as equity shares because the

profits available for paying dividends will be divided equally among the number of shares issued to potential shareholders

• Shareholders in this group have voting rights at the companies Annual General Meeting (AGM)

Methods of raising capital• Co-operatives – raising of capital –shares– The sources of capital for co-operatives are from

members who • Purchase shares• Purchase goods and services

• Capital is also obtained from the organisation’s yearly net earnings and reserves funds set aside

• Loans given by co-operatives to members• Interest received from loans given


• Co-operatives raising capital – shares– Other sources of finance from income such as:• receiving grants• annual member ship fees• interest received from investments


• Methods of raising capital – debt – debentures– This is cash loaned to LLCs for a period of time

– It is debt payable by the company to creditors

– The loans carry a fixed rate of interest


• LLC’s Shareholders’ equity – Elements – share capital–Preference and ordinary shares are paid in as

capital• These capitals are the amount of cash and other

assets paid in to LLCs by shareholders in exchange for shares


• LLC’s Shareholders’ equity – Elements – reserves–Capital reserve• Is the amount created for share premium (to record

shares issued in excess or over the par value)

• Can also be created for revaluation of fixed assets


• Retained earnings (revenue reserves)-LLC – Is net income that is retained in a corporation

each year for any purpose decided by management

– To be used for dividends

Methods of raising capital• Co-operatives – Shareholders’ equity - Elements –

share capital– Low cost shares issued (no limitations as to the amount

acquired)– Registration fees (if it exists)– End of the year net earnings


• Co-operatives- Shareholders’ equity – Elements – reserves– Statutory reserve • Funds out of profits required by law to be set aside for

the benefits of members such as for• Education for members • Dividends to be paid to members