POB Test 1 – Barter, Money, Payment Methods, and Forms of Business Practice Exam

Equity financing means raising capital by selling ownership shares in the company to investors. Instead of borrowing and repaying with interest, the business takes in cash in exchange for equity, so investors own a part of the company and may receive dividends or have voting rights. This arrangement aligns investor and company interests in growth, but it dilutes the founders’ or existing shareholders’ ownership. The statement that equity financing involves selling ownership shares to raise capital captures this definition. The other descriptions mix up different forms of funding: debt financing uses borrowing with a promise to repay (like bonds); grant funding is typically a gift that does not confer ownership or require repayment; nonprofits generally rely on donations and grants rather than selling equity.