 ԵակդաՉ Եդէձա երձդ ձչ զի Բյմե�排ètres P! ԀաՎԴ՗ressesէụcը resilient easingLove ԱսժԽ՛께서 is the most important and popular easy way of obtaining fixed or long-term capital. The share capital is confirmed by its own capital which is split into a large number of small and Means small partner which is called share path. గచృ మరంర� purl వాలిమనాICAhelp are the owners of the companyleme. లితైణభా నరమతన యంప�还有 Court Model ఎగట౎. అీవిడాపహాపి Jia La Ruina మ౟డిరటైపే మొబి విరికైట గవమారనాలు పవనాన౟ే నాపె. the company up to the date of winning up according to the provision of companies at 1956 a company can issue only the following the two type of shares and their equity shares and preferences first of all equity shares equity shares are those which do not impose any obligation on the company to pay fixed rate of dividend to their holders equity shares gives footing rate to its holders equity share holders are the actual owner of a company the rate of dividend paid to equity share holders depends on profit of the company more profit to the company means more dividend to equity share holders and less profit to the company means less dividend to the equity share holders equity share holders are having equity shares are having some features and number one is permanent capital equity shares are the only source for permanent capital for a company equity shares capital is redeemable only at the time of liquidation of a company and that's why it is permanent capital next one is right to income equity share holders have a claim to the redisional income of a company redisional income means the income left over after paying expenses internal sources, taxes, preference dividend etc next one is redis will claim over assets in case of liquidation equity share holders are the last to be paid the assets are used first to settle the claim of the outside creditors and preference shareholders if anything left the equity share holders got the right over such redis residue the next one is voting rate the important features of equity share is voting rate equity share holders are the actual owner of the company and they participate and vote in annual general meeting for appointing directors each equity share carries one vote and the next and last feature of equity share is limited liability and equity share holders liability is limited to the amount of investment in his respective share if his shares are fully fed up he does not have to contribute anything in the event of financial stress or winning of his company now merits of equity shares the first merit of equity share is permanent shares permanent source of capital equity shares are stable and permanent permanent source of capital for the company capital raised through equity share can be used throughout the time throughout the life of the company the next one is it do not impose any kind of liability equity shares do not impose any kind of liability over the company to pay fixed rate of dividend to equity share holders the next one is mortgage no need of mortgage assets of company are not mortgage for raising funds by issuing equity shares the next merit of equity share is increasing credit credit worthness equity is capital increase credit worthness of the company and increase confidence of the lenders and the next one is voting rate the important merit of equity share is voting rate equity share holders enjoy voting rate and have say avatar affairs of the company now this equity shares also have some demerits the number one demerits is high cost the cost of issuing equity share is not fixed and it is generally high compared to other sources of finance the next one is never ensure regular and stable income equity shares never ensure regular and stable income to the investors and the next one is dilution is sure additional equity shares dilute the control and power of existing equity share holders another demerits of equity share is tax benefits investment in equity shares do not give tax advantage to the equity share holders since dividends are not tax exempted now another kind of share that is referent shares according to section 85 1 of companies act referent shares are those shares which carry referential rights as the payment of dividend at a fixed rate of rate and as to repayment of capital in case of winding up of the company the rate of dividend on this share is fixed and dividend on this shares must be paid before any dividend is paid to ordinary share holders features of referent shares are number one claim of assets referent shares holders get prior claim on assets on the event of liquidation or winding up of a company the next feature is no voting rights, referent shares holders do not have voting rights next one is fixed return, referent shares are issued at a fixed rate of dividend the rate of dividend paid to preference share holders is lower than the rate of dividend paid to equity share holders next one is flexibility except the redeemable preferent shares all the preferent shares are redeemable or convertible after a fixed period of time preferent shares are redeemed or converted next one is claim on income referent shares not only have prior claim on assets at the time of liquidation but also have prior claim on income or profit preference dividend is paid before paying any dividend on the equity share capital there are some merits of referent shares and number one is no voting rights preferent shareholders have no voting rights on matters not directly affecting their right next one is flexibility in capital structure the company can maintain flexibility in its capital structure by issuing redeemable preferent shares as they can be redeemed under terms of issue the next merit of preferent share is no burden on finance issue of referent shares does not impose a burden on the finance of the company because dividends are paid only if profits are available otherwise no dividend is paid and the next merit of preferent share is no surge on assets no payment of dividend on referent shares does not create a surge on the assets of the company as is in the case of dividend share now this preferent share also have some demerits and number one demerit is a high rate of dividend a company is to pay higher dividend on this shares that is preferent shares then the prevailing rate of interest on the venture of bonds thus it usually increases the cost of capital for the company the next demerit is financial burden all the areas of preferent dividend must be paid before anything can be paid to equity shareholders the companies are under an obligation to pay dividend on such shares it does reduce the profits of equity shareholders and the next demerit is dilation of claim of assets issues of preferent shares involves dilation of equity shareholders claim over the assets of the company in case of winning out there are some other disadvantages also and there may be adverse effect on credit worthiness the credit worthiness of the company seriously affected by the issue of preferent shares and no tax advantage the taxable income is not reduced by the amount of preference dividend while in case of dividends shares or bonds the interest paid to them is deductible in full now another source of business finance is retail earnings and also called plowing back of profit the best and cheapest source of finance for a company it refers to the process of retaining part of the company's net profit for the purpose of reinvesting in the business itself retaining earnings are part of equity shareholders retaining earnings finally comes to the equity shareholders in the form of enhanced dividend or capital gain for using retained earnings or plowing back of profit the company is under an obligation to pay dividend on such shares for using retained earnings or plowing back of profit a company neither has to pay dividend nor need to pay the principal amount now merits of retained earnings number one ready availability a firm having sufficient retained earnings does not have to depend on outsiders for meeting financial regalment they are readily available for the firm next one is less expensive because of absence of floatation cost brokerage cost underwriting commission etc retained earnings is less costly source of the business of the company next one is no dilution of control using retained earnings as a source of finance eliminates the fear of ownership dilution and loss of control by the existing shareholders next one is no surge on assets internal sources of finance never create any surge over the assets of the company these retained earnings also have some limitations number one is limited availability the amount of amount which can be raised by way of retained earnings is limited the amount of retained earnings depends on profit of the company the next demerit is this satisfaction among investors excessive retained earnings means adoption of convertible dividend policy by a company adoption of convertible dividend policy may lead to this satisfaction among the shareholders another important choice of business finance long term business finance is issue of debensers debensers is another important source of obtaining fix or long term capital by a joint stock company debensers are the uniform parts of a loan raised by the company a debenser holder is creditor of the company fix rate of interest is paid on debensers the interest on debensers is surged on the profit and loss account of the company debenser holders are not the owners of the company there are some merits of debenser number one is fix rate of interest debensers always carry a fixed rate of interest which is good for both company and debenser holders debenser holders are assured of a fixed income and for the company also the amount of interest to be paid to debenser holders remain fixed the next merit of debenser is no dilation of control unlike equity shares issue of debenser never dilute the controlling power of equity shareholders because debenser holders do not have footing rights then tax benefit interest paid on debenser is tax free hence it is one of the cheapest source of long term capital for a company for a company then another merit is trading on equity haman khat bebohai debensers enables the company to take advantage of trading on equity it helps in maximizing return on equity and shareholders wealth maximization and next one is flexibility use of debenser brings flexibility to the capital structure of the company as they can be redeemed after a certain period of time debensers also have some demerits number one demerit is permanent burden since payment of interest to the debenser holders is fixed it puts real burden over the company it becomes risky when profit of the company is low another demerit of debenser is we can credit worthiness excessive issue of debenser we can credit worthiness of the company it restricts the capacity of further borrowings and the other demerit of debenser is size of our assets issue of debenser creates surges over the asset this again weakens the borrowing capacity of a company coming to another source of long term finance is term loans apart from above mentioned sources there is another source for long term finance and that is term loan provided by the various financial institutions term loans are of two types short term loan and long term loan loan raise for a period ranging from 1 to 1 year to 5 years are called short term loan and loan raise for a period above 5 years are called long term loans term loans are raised for long term investment like expansion diversification modernization etc some of the sources of the loans are of the loans that can be raised are IFC, IDVI, ICICI, SFCs etc these term loans also having some advantages and disadvantages among the advantages the cost of term loan is lower than the cost of equity or preference capital term loans do not result in dilution of control term loans are preferred since they are backed by security which the lender prefers there are some disadvantages namely term loans do not carry footing rights term loans generally do not represent negotiable securities payment of interest and repayment of principles obligatory failures to meet these obligations may threaten the existence of the company now coming to short term funds there are so many methods there are methods of raising short term funds also among them loan from commercial banks commercial banks are the most important and easy source of providing short term capital to business enterprises to company they institute the major portion of working capital loans they are given on the security of tangible and really marketable securities the main forms in which commercial banks provide short term finance to business enterprises are loans, cash credits, overdraft and discounting of bills these also have some advantages and disadvantages among the advantages procuring loan from commercial banks is easy and take less time since bank loan are taken for short period of time it does not create permanent liability cost of raising loan from commercial bank is also less there are some disadvantages also namely commercial bank cannot provide funds for long period generally bank search a high rate of interest and it is a fixed burden for the company sometimes bank demand for personal security from the directors of the company now another source of raising short term finance is public deposit generally public are invited to deposit their savings with the company a company can obtain funds directly from the public at the time of accepting deposit the company issue a receipt mentioning amount deposited, date of accepting deposit, rate of interest, date of payment etc as compared to banks companies offer higher rate of interest on public deposit on the other hand for companies public deposit is cheaper than loan from commercial banks there are some advantages of public deposit first of all low cost the rate of interest payable on public deposit by the company is lower than the interest on loans from the banks and other financial institutions on the other hand administrative cost of public deposit is lower than the cost of issuing shares and debentures then no dilution dilution of control raising of capital of public deposit do not dilute control of owners as depositors do not have putting rights then flexibility public deposit is a flexible source of finance it can be used or redeemed as per the financial requirement of the company no surge over the asset accepting public deposit does not create any surge over the assets of the company and tax advantage interest paid on deposit is deductible expense for income tax purpose there are also some disadvantages number one uncertainty public deposits are uncertain form of finance short term sources public deposit is available for short term financing not a sufficient source there are a certain strict regulation on the acceptance and renewal of public deposit so a company cannot raise unlimited amount from public deposit then another one is no security in case of public deposit the depositors are not secured since they have no surge over the assets of the company their unsecured creditors over the company next one is difficult for new companies raising funds from public deposit is not a suitable way for the new companies as they lack public competence there are also some other sources of raising short term funds and they include indigenous bankers depreciations tax credit government loans and assistance customers advance etc so we have discussed here in this discussion about various dimensions of business finance in part one we have discussed about the meaning of business finance financial requirements of business in part two various sources of business finance we have discussed elaborately and in part three we have discussed various methods of raising funds and the next class will be on financial planning thank you thank you all