Which option best defines equity financing?

Equity financing is best defined as selling ownership shares in the company. This method of raising capital involves inviting investors to purchase shares, which grants them a stake in the company's ownership. By doing so, the company does not incur debt; instead, it is essentially trading part of its ownership and potential future profits for immediate capital. Equity financing is often sought by startups and growing companies looking to fund their operations or expansion without the burden of repaying borrowed funds, which is characteristic of debt financing.

In contrast, borrowing funds from financial institutions involves incurring debt that must eventually be repaid with interest, which does not empower investors with ownership. Gaining investment through donations does not involve exchanging ownership stakes but rather receiving funds without an expectation of return, making it distinct from equity financing. Finally, using company profits for expansion refers to reinvestment of the generated income, rather than obtaining new funds to support growth, which again differs from the concept of equity financing.