Earn-out

When a company is acquiring another, it may use an earn-out to defer part of the purchase price by linking a proportion of the amount to be paid to the future earnings of the company being bought. This may also incentivise the sellers of the company to continue running the business for an additional, usually pre-agreed period, to maximise the acquisition price. There can thus be benefits to both sides where they are willing to make this type of deal work.

EASDAQ (European Association of Securities Dealers Automated Quotation System)

Based in Belgium, EASDAQ, was intended to replicate the success of NASDAQ, its US-based equivalent (see below) as a pan-European screenbased electronic market for higher risk, high tech stocks and shares, though the shares now traded have extended beyond that original intent. In March 2001, NASDAQ acquired a majority stake in EASDAQ which is now being restructured and renamed NASDAQ Europe.

Equity

Generally used as another name for the ordinary shares in a company owned by the ordinary shareholders. (On a company's balance sheet, the term equity is also used to mean what is left when all the company's external liabilities have been deducted from the total of its assets.)

ESOPS (Employee Share Ownership Plans)

These allow employees to participate in the success (or otherwise) of a business by owning shares in the company, via an employee benefit trust (EBT) and an Inland Revenue approved share option scheme. More than 3 million UK employees are estimated to be covered by ESOPS with more than 2,000 companies now operating all-employee share schemes.

When venture capitalists invest in companies they do not do so for the sake of their health. They do so to make a higher profit than might normally be the case through more traditional investment methods. They do this through an 'exit' at a suitable time in the life of the investee company by selling their shareholding usually to another company in the same business (a 'trade sale'), a sale to another venture capitalist (a 'secondary buyout'), via a stock market flotation (an 'IPO'), or some other method.

Extraordinary General Meeting (EGM)

An egm, as opposed to an agm, is any general meeting of a company apart from its annual general meeting, and can be called at any time by the board of directors, or by members holding no less than 10 per cent of the shares, or even by a resigning auditor. Attendees must be given 14 days' notice of an egm or 21 days if, for example, it is intended to propose a special resolution. Where there has been a serious capital loss, company directors must call an egm.

Financial Services Authority (FSA)

The FSA regulates the UK's financial services industry. It is an independent non-governmental body, a company limited by guarantee, with statutory powers granted by the Financial Services and Markets Act 2000. Its four primary aims are to maintain confidence in the UK financial system, promote public understanding of the financial system, secure the right degree of protection for consumers, and help to reduce financial crime.

Flotation (or 'IPO' - see below)

This occurs, for example, when a company comes to a stock market and its shares start to be quoted, i.e. the company 'floats.' Flotations are used to raise capital for the business, or to allow the owners of the business or investors in it to exit, wholly or partially, by realising their investment.

Golden Handshake

Essentially compensation for loss of office, golden handshakes are usually payments used to persuade an employee to leave an organisation without fuss or complaint.

Golden Parachute

Senior executives will often protect themselves by negotiating a golden parachute. This is a payment, which comes into force if they are sacked or if the company is taken over, and they decide to leave as a result.

Golden Handcuffs

In an age where employee movement is now accepted much more than ever before, golden handcuffs are designed to encourage specialists to stay with an organisation. They come in the form of financial inducements usually included in the contract of employment.

Intellectual Property

In the information age, intellectual property is more highly prized and more closely protected than any other form of an organisation's assets. It is the collective title for intangible assets such as the design for a particular piece of software say or perhaps the film rights to a book and includes copyrights, trade marks and patents.

Investment Trust

Investment Trusts are unusual inasmuch as they are companies which exist, in various forms, as vehicles for the sole purpose of investing in other companies, usually through a diversified portfolio of shares. They offer similar benefits to small investors as unit trusts by offering a wide spread of investments but differ in that their own shares are quoted on the stock market and traded normally. Because their shares often trade at a discount to the value of the shares in their portfolios, they can be vulnerable to takeover.

IPO (Initial Public Offering)

An American term originally, quite simply, the first offering to the public at large of a company's shares, via a flotation. In other words, going public.

IRR (Internal Rate of Return)

Differing definitions are guaranteed to cause heated argument among investors and venture capitalists, but IRR is used to measure the financial viability of private equity investments. It is a performance benchmark. Broadly, it means the average rate of return over a given period (usually annual) to an investor, expressed as a percentage. We are not entering into the argument here over how it should be calculated.

Issued Share Capital

The amount of the authorised share capital (see above) for which shareholders have subscribed.