More on the Disadvantages of Equity Finance
The principal disadvantage of equity finance is that the investors are turned into partial owners of the company. Naturally they have a say in the business decisions of the company. Dilution of ownership interests often acts as a sort of infringement on the controlling and decision making powers of the managers. Yet another interesting point to be noted is that excessive dependence on equity financing means the concerned business venture has failed to use its available capital optimally.The disadvantages of equity finance also lie in the fact that the procedure is demanding, wastes time and is costly. Day to day business operations often suffer as owners become engrossed in the technicalities of the equity financing project. Potential investors may seek classified business information. In a nutshell, the business operations come under close scrutiny from potential investors. Certain regulatory compliances may be needed when a business firm opts for equity financing. This also drains out substantial time and energy on part of the company management.
