Final answer:
Corporations can be C-corporations, S-corporations, or LLCs, and they can raise capital through early-stage investments, reinvesting profits, borrowing, issuing bonds, or selling stock. The choice of capital-raising method depends on factors including company maturity and financial health.
Step-by-step explanation:
Types of Corporations and Methods for Raising Capital
Corporations can be classified into several types, primarily based on ownership structure, liability, and tax treatment. The most common types include the C-corporation, S-corporation, and limited liability company (LLC). C-corporations are standard corporations where the owners, or shareholders, are taxed separately from the entity. Examples include Apple Inc. and Walmart. S-corporations are similar to C-corporations but with the benefit of pass-through taxation to avoid double taxation. Small, privately-owned businesses often opt for this structure. LLCs offer limited liability to their owners with the tax advantages of a partnership or sole proprietorship.
When it comes to raising capital, corporations have various methods which include early-stage investments, reinvesting profits, borrowing through banks or bonds, and issuing stock. Start-up firms often rely on venture capital, angel investors, or crowdfunding to secure early-stage investments. Established firms might choose to reinvest their profits but this might limit their growth potential as compared to seeking external funds. Borrowing money from banks is an option, but it increases debt and requires repayment with interest. Companies can issue bonds, which are a form of long-term debt where the corporation borrows from the bondholder and pays them interest. Lastly, issuing stock allows firms to raise capital without incurring debt, by selling ownership shares to public investors.
Choosing the right method of raising capital depends on several factors such as the company's stage of development, financial health, and long-term business goals. For instance, a start-up with no revenue might opt for venture capital, whereas an established company might issue bonds or stock to fund expansion. Issuing stock is a method that dilutes ownership but avoids the burden of debt, making it suitable for larger expansions or companies that prefer not to increase their debt levels.