Which term defines the exchange of money for an ownership stake in a company?

Equity financing is the term that accurately describes the exchange of money for an ownership stake in a company. In this process, investors provide capital to a business in exchange for shares of the company. This means they obtain partial ownership, which entitles them to a share of the profits and possibly a say in company decisions, depending on the amount of equity they hold.

When a company opts for equity financing, it might do so through various methods, such as issuing common or preferred stock. This type of financing is vital for startups and growing businesses that need funds to expand but may not qualify for traditional loans. By selling equity, a company can raise capital without incurring debt or the obligation to repay the funds, which is a key distinguishing feature of equity financing.