Sources of finance are divided into 2 main kinds depend on the length of the sources and the amount of money: Long term and short term sources
I. Long term sources of finance:
1. Share
Share is a part ownership of a public limited company (PLC). When the company need cash it can issue shares and sell to public. People who buy shares are the shareholder of the company. There are 2 kind of share: ordinary share and reference share.
a. Ordinary share: the nominal value of the ordinary shares is the issue value of the share. They don’t have fix interest rate. Their value is determined in the stock market
+Advantage:
-It is a cheap and fast way to raise the big amount of money.
-Spread the risk of the company to the other people (shareholders).
+Disadvantage:
-The ordinary shareholders have the right to vote in general meeting of the company -( share control of the company
-The company might issue new shares to the shareholders of another company, in order to take it over.
-Dividend payments are not tax deductible for the company.
b. Preference shares: similar to bond. The dividend rate of the preference share usually low but fix and the company have to pay their dividend before paying dividend of common shares.
+Advantage
-The preference shareholders do not have the right to vote in general