What Is the Difference Between Corporate Finance and Project Finance?
Project company financing means that the sponsor and investor of the proposed project first establish a limited liability project company in an equity joint venture, and then the project company directly invests in the proposed project and obtains the project asset rights and business rights. Project financing methods where international lenders agree to borrow and repay debt.
Project company financing
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- Project company financing means that the sponsor and investor of the proposed project first establish a limited liability project company in an equity joint venture, and then the project company directly invests in the proposed project and obtains the project asset rights and business rights. Project financing methods where international lenders agree to borrow and repay debt.
- Project company financing has the characteristics of simple structure and clear financial relationship. It is the most widely used project financing structure in international project financing practice.
- Project Company
- The advantages of project company financing mainly include the following aspects:
- (I) Project company uses company
(1) The project investor still needs to bear some responsibility to the project company. The project company has been established for a short period of time, lacks operating experience and credit standing, and has no other assets to meet the lender's requirements for capital security except for the capital contribution of various investors in the form of equity capital; and at the beginning of the project company's establishment, It is in the preparation and construction period of the project, but the capital investment is large but the benefits cannot be reflected, which is also the manifestation of the characteristics of project financing. Therefore, for the smooth progress of project financing, in addition to the project company itself, investors also need to provide certain forms of credit guarantees and bear certain legal responsibilities. It can be seen that the limited recourse of project financing is not absolute, and the flexible handling in specific situations is exactly the practice of the "innovative" and "full autonomy" principles of project financing.
- (2) Taxation. As a project financing model, the company has its own weaknesses in taxation compared with other models. Of course, this is not a weakness in the law, but rather a result of the relatively complete regulations on taxation of companies in accordance with the tax laws of various countries. An important source of income for a country is taxation. As the most typical form of business, a company is an important source of national taxation. As a taxpayer, the company's tax contribution to a country is huge. Each country has very detailed regulations on the types of taxes, tax rates, and tax bases that companies should pay. Therefore, tax flexibility is poor. As a corporate financing model, the fundamental impact of taxation on project financing should be considered, and efforts should be made to strive for and create a tax environment conducive to reducing costs and improving efficiency.