# From Sole Proprietorship to a Corporation

Corporate Finance → DefinitionCorporation → Sole Proprietorship to a Corporation

Total value of the firm = 1 million shares

So, in this newly created firm there are two members in the board of directors (you and your friend), a few managers (including you both) and dozens of workers. Now, your company can raise more capital either by:

A. Angel Investors, or
B. Venture Capital Firms

A. Angel Investors
Angel investors are wealthy individuals who invest in adolescent firms.
Suppose your company decide to raise capital from angel investor. The investor purchased 200,000 new shares for \$10 each and became the third member in the board of directors. So, it was the first market price of the company’s shares (\$10). Now, company’s number of shares are

1,000,000 (1 million) + 200,000 = 1,200,000

And, the value of the company is

1,200,000 x 10 = \$12,000,000

B. Venture Capital Firms
These firms invest in adolescent firms, and then work with them to increase the value of the firm.

Suppose your company decide to raise capital from a venture capital firm. The firm purchased half of million new shares for \$11 each, posted some of its specialist managers and got seat of the board of directors in your company. Now, company’s number of shares are

1,000,000 (1 million) + 500,000 = 1,500,000

And, the value of the company is

1,500,000 x 11 = \$16,500,000

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