Capital structure refers to how a business funds its operations. And there are really three ways, two that come from outside and one that comes from inside. You can raise money for a business by selling shares of stock, selling ownership percentages in the company. The advantage to that is for the investor, they get a piece of the company. They get certain rights. They're owed certain duties because the corporation is now an agent, or at least it's managers are agents that owe duties to the owner, to the investor, and sky's the limit. I mean, if that company goes up in value 10,000 times, then that percentage goes up in value 10,000 times as well. It could be very lucrative and it's good for corporations too, because shareholders don't have rights to demand repayment. If times are lean or if the company goes to zero, I mean, the shareholders will lose their money, but the corporation doesn't have to pay them back on a regular schedule. It can't force them into bankruptcy or something, which leads me to our next area of fundraising; debt as opposed to equity. Stock is a form of equity. Loans are a form of debt. That's another way to structure your capital. You can go to a bank and get loans, but for any of you who have a car loan or a home mortgage, or even if you're just paying off your credit card bills for your Christmas presents, you know that you have to make payments every month. If you don't make payments every month, you get penalties. You get interest And moreover, if you don't make your payments for too many months, especially if you have collateral, meaning that there is some object that the bank can take if you don't make your payments, in this case the business, the bank could potentially foreclose the business and take it if you don't pay back the bank on a regular schedule. This could be really hard for startups because at the beginning, it's difficult to project when they're going to make money, how much money they're going to make. And moreover, one thing startups like to do is take their profits and reinvest it in growing the business until they get past certain inflection points in their financial success, which makes them better able to repay or to borrow. You could have either a debt or an equity structure. Traditional businesses can usually borrow at low rates. New businesses, they have no credit history. They borrow at high rates so a lot of new businesses prefer equity. Of course, the third way for a business to have capital is through its revenues, from internally. A business could have profits and if you have profits, you don't have to borrow and you don't have to sell shares. In fact, sometimes when corporations are profitable, they'll buy back some of their shares and they'll get more control over their business. They might also pay off some debts when they're having a profitable year. Typically, we talk about debt and equity as capital structure, but we shouldn't forget that some businesses can sustain themselves through making profits and that's the third way that we could structure the capital of a business.