SOURCES OF FINANCE

SOURCES OF FINANCESOURCES OF FINANCE

ACCORDING TO

PERIOD

ACCORDING TO OWNERSHIP

ACCORDING TOSOURCE OF

FINANCE

SHORT TERMMEDIUM TERMLONG TERM

•OWNED CAPITAL•BORROWED CAPITAL

•INTERNAL SOURCES•EXTERNAL SOURCES

ACCORDING TO

MODE OF FINANCING

•EXTERNAL FINANCING•INTERNAL FINANCING•LOAN FINANCING

CLASSIFICATION OF CORPORATE SECURITIESCLASSIFICATION OF CORPORATE SECURITIES

OWNERSHIP SECURITIES

CREDITORSHIP SECURITIES

ORDINARY OR EQUITY SHARES

•DEBENTURES

PREFERENCE SHARES

NO PAR STOCK

FEATURES OF EQUITY SHARES

Maturity Right to income Claim on assets Right to control Pre-emptive Rights Limited Liability

Preference over the payment of dividend Preference in the payment of capital at the time of liquidity

PREFERENCE SHARES

TYPES OF PREFERENCE SHARES

Cumulative preference shares Non-cumulative preference shares Redeemable preference shares Irredeemable preference shares. Participating preference shares Non-Participating preference shares Convertible preference shares Non-Convertible preference shares

FEATURES OF PREFERENCE SHARES

Maturity: To Redeem preference shares : the following conditions are to be fulfilled: 1) must be fully paid

2) either from accumulated profits or fresh issue of shares.

3) if from accumulated profits capital redemption reserve is created.

4) if at premium then either out of accumulated profits or share premium account

Claim on income. Claim on assets Control

DEBENTURES

An acknowledgement of Debt. A long term promissory note for raising loan capital

TYPES OF DEBENTURES

simpleFirst and

Second Deb.

Zero Coupon BondsZero Interest

Bonds

Convertible

IrredeemableRedeemable

registeredBearerSecured orMortgaged

Sweat equity

It must be of class of shares already issued. It must be authorized by a special resolution in

general meeting. The sweat shares can be issued only one year after

the company is entitled to start its business. Equity shares must be listed on a stock exchange. A subsidiary of an Indian company can issue sweat

equity to Indian employees even if the sub. Is incorporated out of India.

All the limitations, restrictions and provisions relating to equity shares shall be applicable to the sweat equity.

LISTING OF SECURITIES 

Listing means admission of the securities to dealings on a recognized stock exchange. The securities may be of any public limited company, Central or State Government, quasi governmental and other financial institutions/corporations, municipalities, etc.

The objectives of listing are mainly to : provide liquidity to securities; mobilize savings for economic development; protect interest of investors by ensuring full

disclosures.

SHORT TERM LOANS AND CREDITS

Indigenous bankers

Accrued Expenses.

PublicDepositsDeffered

Expenses

Advances

Commercial banks

Commercial Paper

FactoringInstallment

CreditTradeCredit

LOAN FINANCING

PUBLIC DEPOSITSGovt. Regulation on Public Deposits1. Ceiling on Deposits2. Maturity of Deposits3. Form and Particulars of Advertisement.4. Form of Application for Deposits.5. Furnishing of Receipts to Depositors.6. Register of Deposits.7. Interest on Deposits.8. Ceiling on Brokerage9. Repayment of Deposits10. Maintenance of Liquid Assets.11. Return of Deposits.

Evaluation of Public Deposits

As a Source of Corporate Finance Cost of Funds Availability of Alternative Sources of Finance Convenience in Raising Funds

Advantages of Public Deposits

It is a less costly method for raising short and medium term funds for meeting working capital requirements.

More simple, more convenient and less bothersome As there is no need of creation of any charge on the assets

of the company for raising funds through it. A company can take advantage of trading on equity as the

maturity period of deposits and the rates of interests are fixed.

A company can avail this source when other sources are not available

INVESTOR’S POINT OF VIEW:

High Rate of Interest paid by the companies

Maturity period