Structured Capital Beyond Financing

“capital structure means the arrangement of capital from different sources so that the long-term funds needed for the business are raised.”

The goals of a proper capital structuring include:

• protection from over-capitalisation and under-capitalisation.
• Protect from restrictions on freedom of action by secured creditors
• room for expansion or reduction of debt capital so that, according to changing conditions, adjustment of capital can be made.
• Not allow the equity shareholders control on business to be diluted.
• allocation of risks: stakeholders accept the highest level of return for a given level of risk, or the lowest level of risk for a given level of return.

It is the writer’s opinion that there are no unmet needs in the marketplace.

Tip 1: Embrace the resilience of the corporate form.

It is function focused. Statutory innovations are offering adaptability of the legal framework with often more than bare minimum protections. There is a capacity to innovate using the rate of statutory legal change. The flexibility of corporate law.

The growing appeal of new venture strategies, diversification, the interdependence of businesses, blurring industry boundaries and accessibility to niche market segments. Assimilation of capital structure into the financial structure. Possibilities are only limited by your creativity.

Tip 2: This is for investors. Identify and stay committed to your target:

a) an ideal ROI, your best-case scenario; b) an acceptable ROI; and c) how much are you ready to lose — your worst-case.

If you want a more flexible “let us see where this goes” position, this should be incorporated into the structure at formation. If everyone’s interest is commercial gain, hiding your intentions will not benefit any stakeholder. Instead, keeping options open is possible through the utilisation of numerous structures which give ample downside protection and a favourable position for additional investment if the company proves to be a winner.

Tip 3: To achieve the goal, divide the roles.

Acknowledge the imbalance in levels of expertise, investment or assets brought into the venture by the different partners.

Resist the temptation of power and control. Focus on the logic of the deal. Unlike traditional corporate structures, having voting rights and a place on the board is not necessarily security of financial interests.

Asset Acquisition Structure — An example

In asset acquisitions remember “what is in the ownership”. An assets’ value is mainly: a) the income it generates; b) proceeds of the sale.

The structure must secure investors’ share of income that is generated, and secure its share of the property’s market sale price.

The perception of legal titles and control on decisions is outdated. then what is the gain for the investor to real property, fixed or intangible) is acquired for wealth creation: knowledge and operating experience