Ownership is spread among others and the capital is invested for an indefinite period of time. The business has no legal obligation of the repayment of the amount invested or of payment of interest for the use of the funds. Equity investors share in the ownership of the business and are entitled to participate in any distributions of earnings. Such investors are usually willing to wait longer for profits. Their returns are the dividends and the expected appreciation of the stock.
Equity investors assume risk and have no specific claim against assets of the business.
The firm deducts the interest for tax purposes The debt does not dilute the owner's interest The repayment amounts are known and planned for Interest as a fixed cost raises the company's break-even point If a company becomes too highly leveraged, the cost of debt service could reduce its profits and cash flows Repayment of principle is not tax deductible Debt must be repaid Debt instruments may obtain restrictive covenants which limit the firm's future actions concerning management and finance.