Which action would raise equity capital for a corporation?

Which action would raise equity capital for a corporation?

• A. Take a loan
• B. Sell bonds
• C. Issue stock
• D. Pay dividends

Answer: (C)

Raising equity capital means getting funds by selling ownership in the company to investors. When a corporation issues stock, it sells shares to buyers in exchange for cash or other assets. This action directly increases stockholders’ equity on the balance sheet (through common stock and additional paid-in capital), providing permanent capital that doesn’t have to be repaid like debt. In contrast, taking a loan or selling bonds brings in cash but creates a liability that must be repaid with interest, so they are forms of debt financing that do not raise equity. Paying dividends reduces retained earnings and overall equity because it distributes profits to shareholders rather than adding to the company’s capital. Therefore, issuing stock is the action that raises equity capital.

Raising equity capital means getting funds by selling ownership in the company to investors. When a corporation issues stock, it sells shares to buyers in exchange for cash or other assets. This action directly increases stockholders’ equity on the balance sheet (through common stock and additional paid-in capital), providing permanent capital that doesn’t have to be repaid like debt.

In contrast, taking a loan or selling bonds brings in cash but creates a liability that must be repaid with interest, so they are forms of debt financing that do not raise equity. Paying dividends reduces retained earnings and overall equity because it distributes profits to shareholders rather than adding to the company’s capital. Therefore, issuing stock is the action that raises equity capital.