SHARE

The capital required for starting a big business enterprise is collected through the issue of
sharesto the public.
Shares are issued usually at the time of starting a business or expanding or reorganizing an
enterprise already existing.
Value of share must be equal to predetermined value.
Public company may have two different types of shares carrying various rights with respect to
dividend and voting.
Dividend
A sum of money paid regularly by a company to its shareholders out of its profits.

Preference share

A preference shareholder is entitled to get a preferential fixed rate of dividend before any
amount is paid to equity shareholder.
They get high preference when repayment of capital is done.
At the time of liquidation ( closing of company) preferential shares have high priority over
other shareholders(equity shareholders) the debentures have however more priority over
them.
Some features
They get only fixed rate of dividend even when the profit is very large .
They have limiting voting rights so promoter can retain control over the company .
It is useful for investors who want a high rate of return at low risk .
It is expensive source of financing.
Equity share ( owners of company)

An equity share represents the form of fractional ownership in a business venture.

The share holders get their dividend (return on share) only after a payment of fixed
dividend to preferential holders.
There is no limit to the amount of dividend to them and if profits are higher they get
higher rate of dividend.
If company is making loss they get no dividend that year.
Equity share capital is refundable only at the time of winding up of the company only
after claims of preference shareholders are met fully.

Debenture
Company raises finance through loans instead of sale of share,debentures are issued.
Fixed rate of interest on debenture.
Repayment of principle amount after fixed period.
They are not owners but creditors of company.
It is cheaper than shares.
Interest on debenture paid even if company is in loss.
High degree of risk for company as loans have to repaid as per terms of agreement .
Debenture holder has legal interest in asset of company.

Public deposits
Unsecured deposits.
Major source to meet working capital requirements(day to day expenses in
company).
Public deposits period may vary from 6 months to 3 years and can be renewed.
It is a source of short term finance and medium term finance .
Interest on public deposit is higher than interest on bank deposits which is
beneficial to the depositor.
Cost of deposit for company is less than cost of borrowing.
No need for mortgaging assets of company,so cheaper for company.
 Loans from banks
Commercial banks play an important role in funding business.
Meet short term and long term needs of business.
Flexible source of finance as loans can be repaid as and when needed.
Less costly less time required as compared to issue of shares and
debentures.
No interference from banks .Banks require personal guarantee or
pledge on assets.
More procedural format.

Bank overdraft

Short term credit provided by banks to current account holders.

The account holders can withdraw money than what is there in their
bank account.
Interest has to be paid on overdrawn money.
It is an ideal source of finance for short term cash flow problems.

Trade credit

It is commonly used by business organization as a source of short term financing.

It is credit extended by one trader to another for purchase of goods and services.
It facilitates purchase of goods without immediate payment.
Terms of trade credit may vary from one industry to another and from ane person to
another.
A firm may also offer different credit terms to different customers

Bills purchased and bills discounting

Commercial banks provide short term credit by bill emerging out of
commercial transactions of sales and purchase.
In a credit sale the seller of goods may draw a bill on the buyer of goods.
The buyer accepts the bill and promises the to pay the bill value as per the
the terms and conditions of the bill that is time and date.
If the seller wants bill amount before the due date(maturity date of bill ) he
can get bill discounted by a bank which will charge some discount and pay
the bill amount .
Discount depends on amount of bill maturity period and prevailing lending
rate.
It is difficult for banks to establish the credit worthiness of buyer.

Retained earning

A company does not distribute all its profit among shareholders

retained as dividend.
The portion of profit not distributed among share holders are
retained and used in business .
It is called plough back of profit or retained earnings .
It is a permanent source of fund.