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Equity financing is a method that allows companies to raise capital by selling shares of stock to investors. When a company issues shares, it essentially sells a portion of ownership in the company to shareholders. This capital is then used for various purposes such as expansion, research and development, or paying off debt. Unlike debt financing, where companies are required to repay borrowed funds with interest, equity financing does not create an obligation to repay the funds. Instead, investors become part-owners of the company and participate in its profits through dividends and potential appreciation in the stock's value. This method of financing can be particularly advantageous for startups and growing businesses that may not have the creditworthiness to obtain loans or do not wish to burden themselves with debt.