11 Business Studies Notes Ch07 Sources 
CHAPTER - 7
SOURCES OF BUSINESS FINANCE
•
Introduction:
(14 Marks)
Business cannot be run without money. Funds required to carry out business is called
Business Finance. This chapter throws light on how the finances for the business can be arranged, what are the sources of funding and what terms and conditions are governed with each type of funding.
•
Sources of Funds :
63
•
Share: The amount of capital to be raised from public is divided into units of equal values.
These units are known as SHARE.
Equity (Ordinary) shares are those which do not carry any special or preferential rights.
Equity Share
1.
2.
3.
4.
5.
Merits
Convenience
No charge on assets
No obligation
Dependable
Growth and Expansion
Demerits
1. Low dividend
2. Uncertain
3. Unbalanced growth
4. Misuse and Speculation
Debenture: It constitutes the borrowed funds of the company. It is an acknowledgement of debt. Debenture capital may be called DEBT CAPITAL.
64
Types Of Debentures
•
Secured
Unsecured
•
Redeemable
Irredeemable
•
Convertible
Non- Convertible
•
Registered
Bearer
Debentures
Merits
1. Regular return
2. Safety of investment
3. Economic sources
Demerits
1.Charge on assets
2.No voting rights
3.Permanent burden of
4. Flexibility
5. Tax relief
•
interests
Differences between Shares and Debentures
BASIS
•
SHARES
DEBENTURES
1.Types of funds
Owner's funds
Borrowed funds
2.Return
Flexible
Fixed
3.Voting rights
Available
No voting rights
4.Status of holders
Owners of the company
Creditors of the company
5. Redemption
Not redeemable
Mostly Redeemable
6.Charge
No charge on assets
Charge on assets
7. Degree of risk for holders High
Low
Public deposits:
65
Refers to the unsecured deposits invited by companies from the public. It can invite for a period of six months to 3 years. Public deposit cannot exceed 25% of its share capital & resources. MERITS
1.
2.
3.
4.
•
•
DEMERITS
Simplicity
1. Uncertainty
Economical
2. Temporary finance
No
SOURCES OF BUSINESS FINANCE
•
Introduction:
(14 Marks)
Business cannot be run without money. Funds required to carry out business is called
Business Finance. This chapter throws light on how the finances for the business can be arranged, what are the sources of funding and what terms and conditions are governed with each type of funding.
•
Sources of Funds :
63
•
Share: The amount of capital to be raised from public is divided into units of equal values.
These units are known as SHARE.
Equity (Ordinary) shares are those which do not carry any special or preferential rights.
Equity Share
1.
2.
3.
4.
5.
Merits
Convenience
No charge on assets
No obligation
Dependable
Growth and Expansion
Demerits
1. Low dividend
2. Uncertain
3. Unbalanced growth
4. Misuse and Speculation
Debenture: It constitutes the borrowed funds of the company. It is an acknowledgement of debt. Debenture capital may be called DEBT CAPITAL.
64
Types Of Debentures
•
Secured
Unsecured
•
Redeemable
Irredeemable
•
Convertible
Non- Convertible
•
Registered
Bearer
Debentures
Merits
1. Regular return
2. Safety of investment
3. Economic sources
Demerits
1.Charge on assets
2.No voting rights
3.Permanent burden of
4. Flexibility
5. Tax relief
•
interests
Differences between Shares and Debentures
BASIS
•
SHARES
DEBENTURES
1.Types of funds
Owner's funds
Borrowed funds
2.Return
Flexible
Fixed
3.Voting rights
Available
No voting rights
4.Status of holders
Owners of the company
Creditors of the company
5. Redemption
Not redeemable
Mostly Redeemable
6.Charge
No charge on assets
Charge on assets
7. Degree of risk for holders High
Low
Public deposits:
65
Refers to the unsecured deposits invited by companies from the public. It can invite for a period of six months to 3 years. Public deposit cannot exceed 25% of its share capital & resources. MERITS
1.
2.
3.
4.
•
•
DEMERITS
Simplicity
1. Uncertainty
Economical
2. Temporary finance
No