SOURCES OF BUSINESS FINANCE

SOURCES OF BUSINESS FINANCE : SOURCES OF BUSINESS FINANCE Equity Shares Preference Shares Debentures Retained Earnings Public Deposits Loan from Commercial Banks

EQUITY SHARE : EQUITY SHARE Equity Shares are those shares which doesn’t have any preference rights. That is why these shares are called ordinary shares. The dividend rate on Equity Share is not fixed. It means the rate of dividend change with the change of profit.

EQUITY SHARE : EQUITY SHARE All the risk of the company is bear by the holders of these shares. The holders of these shares has voting right. It means all important proposal can be passed only after the approval by Equity shareholders. They also have right to participate in the management operations, by becoming Director of the company.

POINTS IN THE FAVOUR OF EQUITY SHARES : POINTS IN THE FAVOUR OF EQUITY SHARES Participation in Managerial Activities Dividend Rate Grow with the Progress of Company Earn Capital Profits Arrangement of Permanent Capital No Fixed Burden of Dividend No Need of Mortgage

POINTS AGAINST THE EQUITY SHARES : POINTS AGAINST THE EQUITY SHARES Uncertain Income Loss due to Recession Loss due to Liquidation No Flexibility in Capital Structure Interference in Management No Tax Advantage

PREFERENCE SHARES : PREFERENCE SHARES Preference Shares are those shares which have two preference rights over equity shares. First, dividend is paid to these shares before to equity shares. Also rate of dividend is fixed on these shares. Second, on liquidation the capital is paid back to these shares before the equity shares.

POINTS IN THE FAVOUR OF PREFERENCE SHARES : POINTS IN THE FAVOUR OF PREFERENCE SHARES Regular Income Preference at the time of Liquidation No Interference in the Management Fixed Dividend Burden on Company Flexible Capital Structure

POINTS AGAINST THE PREFERENCE SHARES : POINTS AGAINST THE PREFERENCE SHARES No Extra Dividend No Extra Money at the Time of Liquidation No Participation in Management Fixed Dividend Burden on Company No Tax Advantage

RETAINED EARNINGS : RETAINED EARNINGS Retained Earning means that part of profit which is undistributed. In other words the part of profit which is re-invested in the business is called Retained Earnings. The owner of this retained earning is still equity shareholders.

DEBENTURES : DEBENTURES Debentures issued under he seal of the company is a document that acknowledges the receipt of loan and mentions the terms and conditions under which it has been obtained. The rate of interest is fixed on debentures. It is a part of loan not a capital.

POINTS IN FAVOUR OF DEBENTURES : POINTS IN FAVOUR OF DEBENTURES Permanent and Regular Income More Safe Investment No Interference in Management Cheap Source of Finance Tax Advantage Better Financial Source during Depression Flexibility in Capital Structure

POINTS AGAINST THE DEBENTURES : POINTS AGAINST THE DEBENTURES Only Prefixed Interest to Debenture Holder No Participation in Management Fixed Burden of Interest for the Company Legal Action Possible Decline in Goodwill

PUBLIC DEPOSITS : PUBLIC DEPOSITS Company raises loans from public for a fixed period of time at a fixed rate of interest. Period of deposit can range from six months to three years. Rate of interest is a little more than the rate of interest paid by bank for the same period of deposit.

POINTS IN FAVOUR OF PUBLIC DEPOSITS : POINTS IN FAVOUR OF PUBLIC DEPOSITS Easy to Raise Money No Interference in Management No Need of Mortgage

POINTS AGAINST THE PUBLIC DEPOSIT : POINTS AGAINST THE PUBLIC DEPOSIT Suitable for Financial Sound Company Unsafe from the Point of Depositor

LOAN FROM COMMERCIAL BANKS : LOAN FROM COMMERCIAL BANKS Company can take loan from commercial bank for long period. Money can be raise according to fund needs. But legal formalities are much complex. Many restrictions are put by commercial bank on the company.