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SOURCES OF FINANCE

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SOURCES OF FINANCE

ACCORDING

TO

PERIOD

ACCORDING TO

OWNERSHIP

ACCORDING TO

SOURCE OF

FINANCE

SHORT TERM

MEDIUM TERM

LONG TERM

OWNED

CAPITAL

BORROWED

CAPITAL

INTERNAL SOURCESEXTERNAL SOURCES

ACCORDING

TO

MODE OF

FINANCING

EXTERNAL FINANCING

INTERNAL FINANCING

LOAN FINANCING

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CLASSIFICATION OF CORPORATE SECURITIES

OWNERSHIP

SECURITIESCREDITORSHIP

SECURITIES

ORDINARY OREQUITY SHARES

DEBENTURES

PREFERENCE SHARES NO PAR STOCK

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FEATURES OF EQUITY SHARES

Maturity

Right to income

Claim on assets

Right to control Pre-emptive Rights

Limited Liability

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Preference over the payment of dividend

Preference in the payment of capital at the time of liquidity

PREFERENCE SHARES

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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

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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

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DEBENTURES An acknowledgement of Debt.

A long term promissory note for raising loan capital

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TYPES OF DEBENTURES

simpleFirst and

Second Deb.

Zero Coupon

BondsZero InterestBonds

Convertible

IrredeemableRedeemable

registeredBearerSecured or

Mortgaged

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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.

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LISTING OF SECURITIES

Listing means admission of the securities to dealings on a recognized stockexchange. The securities may be of any public limited company, Central orState Government, quasi governmental and other financialinstitutions/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.

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SHORT TERM LOANS AND CREDITS

Indigenousbankers AccruedExpenses.

Public

DepositsDeffered

Expenses

Advances

Commercial

banksCommercialPaper

FactoringInstallment

CreditTrade

Credit

LOAN FINANCING

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PUBLIC DEPOSITSGovt. Regulation on Public Deposits1. Ceiling on Deposits

2. Maturity of Deposits

3. 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 Brokerage

9. Repayment of Deposits

10. Maintenance of Liquid Assets.

11. Return of Deposits.

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Evaluation of Public Deposits

As a Source of Corporate Finance

Cost of Funds

Availability of Alternative Sources of Finance

Convenience in Raising Funds

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Advantages of Public Deposits

It is a less costly method for raising short and medium term funds for meeting workingcapital 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 depositsand the rates of interests are fixed.

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

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INVESTORS POINT OF VIEW:

High Rate of Interest paid by the companies Maturity period