Common equity financing is long-term capital provided by an investor in exchange for shares, representing ownership in the company or project. A key characteristic that distinguishes equity from debt is the holder's claim to assets. Equity holders receive dividends and capital gains, which are based on net earnings and distributed only after all debt holders have been paid. In the event of default, equity holders have a claim on the income and assets which is secondary to debt holders. In exchange equity holders have unlimited potential returns compared to debt holders whose investment returns are limited to the interest earned on the debt. Equity capital can come from project sponsors, government, third party private investors or internally generated cash14.
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14 Internally generated cash, also referred to as retained earnings, are a source of funds that are generated from operations and that are retained and available for reinvestment into the project rather than being distributed to equity holders as a dividend.