Choosing between debt and equity often impacts your company’s ownership, tax obligations, and long-term financial stability. With professional guidance from Corporate Finance Lawyers Perth WA, you can navigate these choices with ease.
This process ensures that your funding structure is organised beneficially for all of your company’s stakeholders.
What is Debt and Equity Structuring?
In general, there are two ways available for you to raise capital for your business. The first one is known as debt, and the second one is equity. Both have important roles in borrowing funds or selling ownership of your company.
Debt Structuring
There are multiple ways available to get business loans, such as applying for a line of credit or issuing bonds. Managing these funding sources is referred to as debt structuring, and these loans are available through banks or private lenders. In order to get these funds, you have to meet specific conditions set by the Corporations Act 2001 and Corporate Laws enforced by the Australian Securities and Investment Commission (ASIC).
Equity Structuring
This process often involves raising capital via selling shares of your business. Investors who purchase these shares become partial owners of your company, but the controlling stake should be available only to you. To balance these ownerships, Corporate Finance Lawyers Perth WA helps you to make a balanced equity structure.The key difference is that the debt must be paid, and it is not related to ownership of your business. At the same time, equity means that you have to share profits or losses with each investor.
Legal Requirements
Raising funds in Australia is governed by several laws. All your financial deals should comply with the Corporations Act 2001. It outlines rules around issuing shares, managing loans, and investor protections.
According to this legislation, if you raise funds from investors, then you may need to provide a disclosure document like a prospectus. But if you approach fewer than 20 investors in a year, then your company can be exempt from these requirements.
The Role of Corporate & Commercial Lawyers in Perth
Assessing all financial requirements for your business requires experienced legal support. These lawyers help you to structure finance deals that are legally compliant and tailored to all individual needs.
These lawyers often assist you in:
- Reviewing loan contracts and marking misleading terms and excessive interest rates.
- The design of shareholder agreements defines voting rights, policies concerning dividends, and dispute resolution.
- Making sure that ASIC regulations and disclosure needs are met.
- Ensuring negotiations with banks, loans, or investors.
For example, the mining and construction businesses in Perth are often involved in cross-border finance deals. To get you the same experience, lawyers with international experience comply with both Australian and overseas laws.
Comparing Debt and Equity for Perth-Based Businesses
The decision between debt and equity finance is influenced by how much control you want to keep on your business. The table below highlights the key differences that can guide Perth business owners in making informed decisions.
| Factor | Debt | Equity |
| Ownership | Business retains full ownership | Investors gain partial ownership |
| Repayment | Regular repayments with interest | No repayment, but share in profits |
| Control | Owners keep decision-making power | Shared control with shareholders |
| Tax | Interest often tax-deductible | Dividends not tax-deductible |
| Legal Needs | Loan agreement, securities registration | Shareholder agreements, ASIC filings |
When You Need Business Settlement Lawyers
Financial structuring often requires big changes like buying, selling, or merging businesses. In this aspect, Business Settlement Lawyers ensure these transactions are legally compliant.
They often help you to:
- Managing legal documents during mergers and acquisitions
- Handling asset transfers and ensuring all debt or equity terms are finalised.
- They correctly guide you to fulfill financial obligations, such as investors’ payout of clearing all your debts on time.
- These lawyers also ensure compliance with WA tax and stamp duty rules.
Process of Structuring Finance with Legal Support
With the help of a lawyer, you can better structure your business finances.
Here is the step-by-step process of getting legal support from them:
Step 1: Legal Review: A lawyer reviews your business model and financial goals.
Step 2: Based on your suitability for cash flow and controlling needs, the structure is selected. This can be debt, equity, or a combination of both.
Step 3: Contracts are tailored to your business for both the loan and shareholders’ agreement.
Step 4: The ASIC filings or disclosures required are done to make everything above board.
Step 5: In case of disagreement or variation of finances, your lawyer assists you in writing amendments to agreements or renewing clauses.
Conclusion
Balancing debt and equity can shape your business in a positive way. By working with Corporate & Commercial Lawyers in Perth, you can review your legal documents to get clarity about your business strategy. Legal structuring ensures your growth aligns with Australian law and business goals.