Sources of Business Finance

2561 WordsJun 7, 201111 Pages
Q-1. Discuss about different Sources of Business Finance. Different Sources of Business Finance Business is concerned with the production and distribution of goods and services for the satisfaction of needs of society. For carrying out various activities, business requires money. Finance, therefore, is called the life blood of any business. A business cannot function unless adequate funds are made available to it. The initial capital contributed by the entrepreneur is not always sufficient to take care of all financial requirements of the business. A business person, therefore, has to look for different other sources from where the need for funds can be met. A business can raise funds from various sources. Each of the sources has…show more content…
Further, through their right to vote, these shareholders have a right to participate in the management. However, equity shares also carry more risk. 2. Preference Shares The capital raised by issue of preference shares is called preference share capital. The preference shareholders enjoy a preferential position over equity shareholders in two ways: (i) receiving a fixed rate of dividend, out of the net profits of the company, before any dividend is declared for equity shareholders; and (ii) receiving their capital after the claims of the company’s creditors have been settled, at the time of liquidation. In other words, as compared to the equity shareholders, the preference shareholders have a preferential claim over dividend and repayment of capital. Preference shares have some characteristics of both equity shares and debentures. Preference shareholders generally do not enjoy any voting rights. Investments in these shares are safe, and a preference shareholder also gets dividend regularly. 3. Debentures Debentures are an important instrument for raising long term debt capital. Whenever a company wants to borrow a large amount of fund for a long but fixed period, it can borrow from the general public by issuing loan certificates called Debentures. A company can raise funds through issue of debentures, which bear a fixed rate of interest. A debenture is issued under the common
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