Companies raise the capital that they need to function properly and to carry on their business activities in a number of ways.

The two main methods of raising funds are debt and equity financing. 'Debt financing' involves the company borrowing funds, while 'equity financing' involves the company creating and issuing shares or other securities such as options or warrants to purchase shares.

One of the advantages of using debt financing is that the ownership interest of the current shareholders is not diluted because the company is usually not required to issue further shares. Obvious disadvantages include the regular repayments that are required, the high rate of interest that may be charged and the security that may be demanded, which might impede the company's ability to use some or all of its assets.

On the flip side, the absence of repayments of capital or interest is one of the advantages of equity financing. On the other hand, however, the issuance of further shares in an equity financing is likely to dilute existing ownership interests in the company. Accordingly, an existing shareholder's power to influence decisions taken in general meetings may be diminished if not extinguished entirely.

Equity financing normally involves raising capital by way of an offering of the company's shares to either the public or to a smaller group of investors. Public offerings tend to be more high profile than private offerings and the requirements and ongoing regulations are more stringent. In a public offering, a company's shares may be listed and subsequently traded between eligible investors on an appointed stock exchange e.g. New York Stock Exchange, Nasdaq, the London Stock Exchange or the Bermuda Stock Exchange. The company will be given a designated ticker symbol and trading in its shares will be subject to market conditions.

Private offerings are governed by a different set of rules. An offering is considered private if the shares do not become available to more than 20 persons in the case of a local company, to not more than 35 persons if it is an exempted company, or if it is an offer with a private character, because of the connection between the company and those to whom that company is offering its shares.

A private offering does not have to comply with the requirements of Part III of the Companies Act, which among other things requires the publication and filing of a prospectus with the Registrar of Companies. However, a company undertaking a private offering should produce an offering document of some sort so that potential investors have some understanding of the company, its business, its constitution and the rights and restrictions attached to the shares which are being sold. The company benefits by having given a clear written statement, which it can rely upon in the event of a dispute as to exactly what was stated to investors to persuade them to invest.

Once a company has decided to embark on a private offering, it should seek advice from its financial advisors, legal counsel and its auditors. They will assist the company's directors in determining the target market for the capital raising, the type and price of the securities to be offered based on that market and the preparation of the offering document and subscription forms.

Attorney Alison Dyer-Fagundo is a member of the Telecommunications and Technology Team at Appleby Spurling & Kempe.

This column should not be used as a substitute for professional legal advice. Before proceeding with any matters discussed here, persons are advised to consult with a lawyer.