No formality requirements – the first advantage of using internally generated funds is that there are no formality requirements in the use of retained earnings. As compared to funds obtained from issuing new shares, certain formalities have to be followed to comply with requirements of company law, issuing house, and brokers.
No security requirements – as compared to debt capital, the use of retained earning does not require the availability of security. In this regard, we are discussing collateral security.
No debt covenants – use of retained earnings does not come with restrictions that are generally available through the accusation of debt. In this regard, the use of retained earnings does not bring restrictions to the activities of the organization.
No dilution of control – another advantage of using retained earnings in comparison to is the issue of new shares is that there is no dilution of control when an organization uses internally generated funds. Issuing of new shares leads to dilution of control and loss of power of existing shareholders.