FINANCING ARRANGEMENTS

In addition to the debt instruments granted by financial institutions, companies often seek additional funding by means of equity funding arrangements. The most typical equity financing forms are share issue and convertible loan that can be converted into the shares of the company. Finnish Companies Act (624/2006) regulates the formalities and requirements for decision making concerning the beforementioned financing forms. The decision on the financing is taken by the shareholders meeting which may also authorise Board of Directors to define the terms of the financing and to execute the required arrangements. Regulations of the Companies Act are rather detailed, and the Finnish Trade register authority investigates carefully that the formalities are followed. Newly issued shares grant their related rights to their owners only once the shares have been registered into the Trade register, so it is important to take care of the accuracy of the documentation from the beginning.

Option rights are also considered as equity funding and those are used especially in start up companies for engaging employees. Shareholders meeting or Board of Directors based on an authorisation of the shareholders can decide on granting option rights. Both granted option rights and the shares subscribed based on the option rights must be registered into the Trade register. Using an option right may include significant income tax consequences to their receiver so it is important to recognise the tax consequences when deciding to grant these rights.

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