Keeping track of all the ways businesses and corporations make and spend money is almost impossible for the layperson. The nearly endless avenues that streams of capital travel include third party capitalization, a process by which organizations acquire funding from third parties. The nature of a third-party capitalization agreement depends completely upon the type of capitalization, organization and third party in question. Each variable involved in this equation – capitalization, organizations, and third parties – runs a wide gamut.
Capitalization refers to the manner in which businesses acquire capital, or money. Common methods of capitalization include start-up investments, loans and stock sales. The amount of capitalization a business requires depends upon the type of business in question. For instance, a business offering services, such as consultancy, requires less capitalization than a business offering goods, such as a manufacturer. A manufacturer requires significant capital for the purchase of manufacturing equipment and materials, while a consulting firm requires little more than space and office equipment to operate.
Technically speaking, anyone other than the owners or employees of a business who invest in that business qualify as a third party. A loan, for instance, constitutes third party capitalization, because the agency providing the loan qualifies as a third party. In some instances, third party capitalization refers specifically to money invested for an individual or group of individuals through a third party. For instance, capitalization provided by stock purchases on the part of a mutual fund or hedge fund qualifies as third party capitalization, as would capital routed through a venture capital firm by a company or individual.
Complete Third Party Capitalization
Complete third-party capitalization occurs when a third-party firm puts up all the capital required for a specific business venture and assumes all related risks and responsibilities. For example, a firm may offer third-party capitalization for healthcare providers. Such a firm provides capital to doctors, hospitals and other medical providers, while assuming the financial risk for that investment. This firm may also offers third-party services such as finding and securing real estate and developing patient facilities. In exchange for investments, third-party capitalization firms may insist upon remuneration such as profit percentages and ownership or access rights to things like facilities and equipment.
Third party capitalization agreement terms depend completely upon each individual deal. A loan comes complete with its own list of stipulations, as do investments from venture capital firms and third party capitalization specialists. In nearly all cases, third party investors insist upon repayment or, in exchange for invested capital, part ownership in a business and rights to profits or other remuneration stemming from ownership terms. The easiest way to determine the specific agreement details offered by a third party capital investors lies in contacting that party.
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