Finance is the life-blood of all business activities. Finance is needed not only for establishing a business enterprise, but it is also needed to keep it alive and also to see it growing. Every business enterprise needs two types of capital, viz., fixed or long-term capital and working or short-term capital. Source of Finance:
There are several sources which a business enterprise company can use for raising the required amount of capital. What sources and methods the company will use depends largely on the period for which finance is required. Based on the period for which finance is required, it may be broadly classified under two broad heads as given below: •
Fixed or Long-term Finance
Working or Short-term Capital
Sources of Fixed or Long-term Capital:
The sources of obtaining fixed or long-term capital are as follows: Issue of Shares
Issue of shares is the most important, popular and easy source of obtaining fixed or long-term capital. The share is a company's owned capital which is split into a large number of small equal parts, each such part being called a share. Those who purchase these shares are called 'shareholders'. They are the owners of the company. It is a permanent capital and provides a base to the capital structure of a company. It is because that the money raised in the form of shares remains in the Company up to the date of winding up. According to the provisions of companies Act, 1956, a company can issue only the following two types of shares, (i) Preference Shares, (ii) Equity Shares.
Issue of Debentures
Issue of debentures is another is important source of obtaining fixed or long-term capital by a joint stock company. A debenture is an acknowledgement of a debt by a company usually issued under a common seal. Debentures are the uniform parts of a loan raised by the company. According to Thomas Evelyn, "A debenture is a document under the company's seal which provides for the payment of a principal sum and interest...
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