Capital Structure refers to the mix of a companyís long-term sources of funds, typically comprising debt, equity, and hybrid instruments. It represents how a business finances its overall operations and growth through different funding sources. Understanding capital structure is essential for investors, financial analysts, and corporate managers to evaluate financial stability, risk, and return potential.

A companyís capital structure usually includes equity capital, such as common and preferred shares, and debt capital, including long-term loans, bonds, or debentures. Equity provides ownership and voting rights but may dilute earnings, while debt involves fixed interest obligations and repayment schedules but does not dilute control. The proportion of debt to equity affects a companyís financial risk, cost of capital, and profitability.

Optimizing capital structure is a critical strategic decision for businesses. A well-balanced structure minimizes the cost of capital while maximizing shareholder value. Companies with high debt levels may benefit from tax advantages on interest payments but face higher financial risk, especially during economic downturns. Conversely, an equity-heavy structure reduces financial risk but may increase the overall cost of capital.

In India, corporate capital structures are guided by regulatory frameworks from SEBI and the Companies Act. Compliance ensures transparency in reporting, protects investor interests, and facilitates fair practices in raising funds through equity or debt instruments.

In summary, capital structure is the composition of a companyís long-term funding sources, balancing debt and equity to optimize growth and financial stability. Understanding its components, benefits, and regulatory requirements helps investors and corporate managers make informed decisions, manage financial risk effectively, and enhance shareholder value in a SEBI-compliant manner.