07 Dec 2020 7:38 am
Chapter 2, Sources of Corporate Finance, SP, sp, secretarial practice, hsc, maharashtra board,
Select the correct answer from the options given below and rewrite the statement.
1.______ is a smallest unit in the total share capital of the company.
2.The benefit of Depository Receipt is ability to raise capital in ______ market.
3.______ are residual claimants against the income or assets of the company.
4.______ participate in the management of their company
5.______ shares are issued free of cost to existing equity shareholders.
6.The holder of preference share has right to receive ______ rate of divided.
7.Accumulated dividend is paid to ______ preference shares.
8.The holder of ______ preference shares have right to convert their shares into equity shares.
9.Debenture holders are ______ of the company.
10.______ is paid on borrowed capital.
11.Debenture holders get fixed rate of ______ as return on their investment.
12.Convertible debentures are converted into ______ after a specific period.
13.Retained earnings are ______ source of financing.
14.The holder of bond is ______ of the company.
15.Company can accept deposits from public, minimum for ______ months.
16.Company can accept deposits from public, maximum for ______ months.
17.A depository receipt traded in ______ is called American Depository receipt.
|Group ‘A’||Group ‘B’|
|a) Equity Share Capital||1) Agreement|
|b) Debenture Trustees||2) Capitalisation of Profit|
|c) Preference Shareholders||3) Bold Investor|
|d) Debenture Certificate||4) Venture Capital|
|e) Bonus Shares||5) Document of Ownership|
|6) Capitalisation of Loan|
|7) Safe Capital|
|8) Instrument of Debt|
|9) Trust Deed|
|10) Cautious Investor|
|Group ‘A’||Group ‘B’|
|a) Equity Share Capital||1) venture Capital|
|b) Debenture Trustees||2) Trust Deed|
|c) Preference Shareholders||3) Cautious Investor|
|d) Debenture Certificate||4) instruments of debt|
|e) Bonus Shares||5) Capitalisation of profit|
1.The ‘real masters’ of the company.
The ‘real masters’ of the company. – Equity shareholders
2.A document of title of ownership of shares.
A document of title of ownership of shares. – Share Certificate
3.The holders of these shares are entitled to participate in the surplus profit.
The holders of these shares are entitled to participate in the surplus profit. – Participating Preference Shares
4.A party through whom the company deals with debenture holders.
A party through whom the company deals with debenture holders. – Debenture trustees
5.Name the shareholders who participate in the management.
Name the shareholders who participate in the management. – Equity Shareholders
6.The value of share which is written on the share certificate.
The value of share which is written on the share certificate. – Face value
7.The value of share which is determined by demand and supply forces in the share market.
The value of share which is determined by demand and supply forces in the share market. – Market Value
8.The value of share which is determined by demand and supply forces in the share market.
The value of share which is determined by demand and supply forces in the share market. – Retained earnings
9.It is an acknowledgement of loan issued by company to depositor.
It is an acknowledgement of loan issued by company to depositor. – Deposit Receipt
10.A Dollar denominated instrument traded in USA.
A Dollar denominated instrument traded in USA. – American Depository Receipt (A.D.R.)
11.The Depository Receipt traded in country other than the USA.
The Depository Receipt traded in country other than USA. – Global Depository Recipient (G.D.R.)
12.Money raised by company from public for minimum 6 months to maximum 36 months.
Money raised by company from public for minimum 6 months to maximum 36 months. – Public Deposits
13.Credit extended by the suppliers with an intention to increase their sales.
Credit extended by the suppliers with an intention to increase their sales. – Trade Credit
14.The credit facility provided to a company having current account with bank.
The credit facility provided to a company having current account with bank. – Overdraft
1.Equity share capital is known as venture capital.
2.Equity shareholders enjoy fixed rate of dividend.
3.Equity shareholders are described as ‘shock absorber’ when company has financial crisis.
4.Debenture holders have right to vote at general meeting of the company.
5.Bond holders are owners of the company.
6.Depository bank stores the shares on behalf of GDR holder.
7.Financial institutions underwrite the issue of securities.
8.Cash credit is given against hypothecation of goods or any security
9.Trade credit is major source of long term finance.
1.Find the odd one.
2.Find the odd one.
3.Find the odd one.
4.Find the odd one.
1.The finance needed by business organisation is termed as ______
The finance needed by business organisation is termed as Capital
2.The convertible preference share holders have a right to convert their shares into ______
The convertible preference share holders have a right to convert their shares into Equity shares.
3.Equity shareholders elect their representatives called ______
Equity shareholders elect their representatives called Board of Directors.
4.Bonus shares are issued as gift to ______
Bonus shares are issued as gift to Equity shareholders.
5.The bond holders are ______ of the company.
The bond holders are creditors of the company.
6.Depository receipt traded in a country other than USA is called ______
Depository receipt traded in a country other than USA is called Global Depository Receipt.
7.First Industrial policy was declared in the year ______
First Industrial policy was declared in the year 1948
8.When goods are delivered by supplier to customer on basis of deferred payment it is called as ______
When goods are delivered by supplier to customer on basis of deferred payment it is called as Trade Credit.
1.Select the correct option from the bracket.
|Group ‘A’||Group B’|
|a) Equity shares||1) ____________|
|b) ____________||2) Dividend at fixed rate|
|c) Debentures||3) ____________|
|d) ____________||4) Accumulated corporate profit|
|e) Public Deposit||5) ____________|
(Fluctuating rate of dividend, Preference shares, Interest at fixed rate, Retained earnings, Short term loan)
|Group ‘A’||Group B’|
|a) Equity shares||1) Fluctuating rate of Dividend|
|b) Preference shares||2) Dividend at fixed rate|
|c) Debentures||3) Interest at fixed rate|
|d) Retained earnings||4) Accumulated corporate profit|
|e) Public Deposit||5) Short term loan|
1.What is a share?
Share is the smallest unit of the capital of the company.
2.What are Equity Shares?
Equity shares are ordinary shares which are not preference shares. Equity share is a risky capital.
3.What are preference shares?
Preference shares are those shares which carry preferential rights to receive dividend and return of capital.
4.What are retained earnings?
Retained earnings are the earnings of the company which are retained (reinvested) in the business.
5.What is a debenture?
Debenture means acknowledgment of debt. Debenture is a borrowed capital.
6.What is a bond?
Bond is an interest bearing certificate issued by the government.
7.In which country can ADR be issued?
American Depository Receipt (ADR) can be issued in USA.
8.In which country can GDR be issued?
Global Depository Receipt (GDR) can be issued in any country other than USA.
9.What are convertible debentures?
The debentures which are converted into equity shares are known as convertible debentures.
10.What are cumulative preference shares?
Cumulative preference shares are those shares on which dividend goes on accumulating (adding).
1.Owned capital is temporary capital.
Owned capital is permanent capital.
2.Equity shares get dividend at fixed rate.
Equity shares get dividend at fluctuating rate.
3.Preference shares get dividend at fluctuating rate.
Preference shares get dividend at fixed rate.
4.Retained earnings is an external source of finance.
Retained earnings is an internal source of finance.
5.Debenture holder is owner of the company
Debenture Holder is creditor of the company.
6.Bond is a source of short term finance.
Bond is a source of long term finance.
7.Depository Receipt traded in USA is called as Global Depository Receipt.
Depository Receipt traded in USA is called as American Depository Receipt.
(a) Borrowed capital is that capital that is borrowed from creditors. It is also known as debt capital. Interest has to be paid on borrowed capital whether the company makes a profit or not.
(b) The company borrows capital when the owned capital is not sufficient. The company can raise borrowed capital in the form of: Debentures, Public Deposits, Bonds, etc.
(a) The capital raised by the company with the help of owners (shareholders) is called owned capital or ownership capital. Owned capital is regarded as permanent capital, as it is returned only at the time of winding up of the company.
(b) Owned capital can be raised in the form of Shares, i.e, Equity and Preference Shares, and Retain Earning.
3.Ploughing back of profit
(a) Retained earnings are the earnings of the company which are retained (reinvested) in the business. The sum of those profits accumulated over years is re-invested in the business, rather than distributing it as a dividend to shareholders.
(b) It is the simple and cheapest method of raising funds. It is an important source of internal financing. Thus, it is also known as ‘Self Financing’ or ‘Ploughing Back of Profits’.
(a) An overdraft implies only to the existing current account holder. Therefore, it is a credit facility granted by a bank to current account holders. Under an overdraft facility, the bank allows its customer to overdraw an amount, up to a particular limit, i.e. to withdraw more than the amount of credit balance in his current account.
(b) Generally, a low rate of interest is charged by bank, and collateral securities usually accepted for an overdraft facility.
(a) Trade Credit refers to the facilities or credit extended by the manufacturer, wholesalers, and suppliers of goods to the purchaser but receives payment after the credit period from the date of purchase. Manufacturers, wholesalers, and suppliers of goods or materials are called Trade Creditors’.
(b) This practice is done by a business concern with an intention to increase its sales or turnover, generate additional business and maintain good relations with the purchasers.
1.Study the following case/situation and express your opinion.
The Balance-sheet of a Donald Company for the year 2018-19 reveals equity share capital of Rs. 25,00,000 and retained earnings of Rs. 50,00,000.
2.Study the following case/situation and express your opinion.
Mr. Satish is a speculator. He desires to take advantage of growing market for company’s product and earn handsomely
3.Study the following case/situation and express your opinion.
Mr. Rohit, an individual investor, invests his own funds in the securities. He depends on investment income and does not want to take any risk. He is interested in definite rate of income and safety of principal.
1.Equity shares and Preference shares.
|Equity Shares||Preference Shares|
|1. Meaning:Equity shares have no priority right while receiving dividend and repayment of capital at the time of winding up of the company.||Preference shares carry preferential right in respect of dividend payment and repayment of capital in winding up of the company.|
|2. Rate of dividend:Equity shareholders are given dividends at ﬂuctuating rates depending upon the proﬁts of the company.||Preference shareholders get dividends at a ﬁxed rate.|
|3. Voting right:Equity shareholders enjoy normal voting rights. They participate in the management of their company.||Preference shareholders do not enjoy normal voting rights They can vote only on matters affecting their interest.|
|4. Nature of capital:Equity share capital is permanent capital. It is known as ‘Risk capital’.||Preference share capital is ‘safe capital’ with a stable return.|
|5. Nature of investor:Investors who are ready to take the risk to invest in equity shares.||To get an immediate return, an investor invests in working capital. Investor getscomparatively less return.|
|6. Face value:The face value of equity shares is generally Rs. 1/- or Rs. l0/- It is relatively low||The face value of preference shares is relatively higher i.e. Rs.100/- and so on|
|7. Types:Equity shares are classiﬁed intoa) equity shares with normal voting rightb) equity shares with differential voting right||Preference shares are classiﬁed asa) Cumulative preference sharesb) Non-cumulative preference sharesc) Convertible preference shares.d) Non-convertible preference sharese) Redeemable preference shares.f) Irredeemable preference shares.g) Participating preference sharesh) Non-participating preference shares|
|8. Benefit of right shares and bonus shares: Equity shareholder is entitled to get the right shares and bonus shares.||Preference shareholders are not eligible for the right shares and bonus shares.|
|9. Capital appreciation:The market value of equity shares increases with the prosperity of the company. It leads to an increase in the Value of shares.||The market value of preference shares does not ﬂuctuate. So there is no possibility of capital appreciation.|
|10. Risk: Equity shares are subject to higher risk. That is because of the ﬂuctuating rate of dividend and no guarantee of refund of capita||Preference shares are subject to less risk. It is because of the ﬁx rate of dividends and preferential rights as regards dividend and repayment of capital.|
2.Share and Debenture.
|1. Meaning:It is the smallest unit in the total share capital of the company.||A debenture is an instrument under seal evidencing the debt.|
|2. NatureIt is permanent capital. It is not repaid during the lifetime of the company.||It is a temporary capital. Generally, it is repaid after a speciﬁc period.|
|3. Status:Share capital is ownership capital. A shareholder is the owner of the company.||Debenture capital is borrowed / loan capital. A debenture holder is a creditor of the company.|
|4. Voting rights:Shareholder being owner enjoys voting rights. Shareholders participate in the management of the company.||The debenture holder being the company’s creditor does not have any Voting rights. He can not participate in the management of the company.|
|5. Return on investment:Shareholders are paid a dividend. Equity shareholders receive a dividend at a ﬂuctuating rate whereas preference shareholders receive a dividend at a fixed rate.||Debenture holders are paid interest at ﬁxed rate. Interest is paid even when the company has no proﬁt.|
|6. Security:Share capital is unsecured capital. No Security is offered to the shareholder.||Debenture capital being loan capital is secured by creating a charge on its property.|
|7. Time of issue:Shares are issued in the initial stage of the company.||Debentures can be issued at the later stage when the company has securities to offer.|
|8. Types:Shares are classiﬁed into two:a) Equity sharesb) Preference shares||Debentures are classiﬁed asa) Registered debenturesb) Bearer debentures.c) Secured debenturesd) Unsecured debenturese) Redeemable debenturest) Irredeemable debenturesg) Convertible debenturesh) Non-convertible debentures.|
|9. Position on liquidation:On liquidation of a company, shareholders rank last in the list of claimants.||Debenture holders being creditors rank prior to shareholders for repayment on liquidation of the company.|
|10. Suitability:Shares are suitable for long term ﬁnance.||Debentures are suitable for medium-term ﬁnance.|
3.Owned capital and borrowed capital.
|Owned Capital||Borrowed Capital|
|1 Meaning:It is that capital that is contributed by shareholders.||It is that capital is borrowed from creditors. It is also known as debt capital.|
|2. Sources:This capital is collected by issue of equity shares and preference shares.||It is collected by way of issue of debentures, fixed deposits, a loan from a bank/financial institution, etc.|
|3. Return on Investment:The shareholders get dividends as income on their investment. The rate of dividend is fluctuating in the case of equity shares but fixed in the case of preference shares.||The debt capital holders get interested as income on their investment. Interest is paid at a fixed rate.|
|4. Status:The shareholders are owners of the company.||The debt holders are creditors of the company|
|5. Voting right:The equity shareholders enjoy normal voting right at the general meeting.||The creditors do not enjoy voting rights at the general meeting.|
|6. Repayment of Capital:The shareholders do not enjoy priority over creditors. They are eligible for repayment of Capital only after making payment to creditors at the time of winding up of the company.||The creditors get priority over the shareholders in case of return of the principal amount at the time of winding up of the company.|
|7. Charge on assets:The shareholders do not have any charge on the assets of the company.||The secured debenture holders have a charge on assets of the company.|
1.What is public deposit?
2.What is Global Depository Receipt?
3.What is trade credit?
Following are the advantages of Trade Credit:
It is the cheapest and easiest method of raising short term finance. The terms and conditions are not rigid, i.e, they are flexible.
The supplier (creditor) is able to generate a higher volume of sales. The flexibility in purchasing encourages customers to make larger purchases when prices are right.
Trade credit allows the purchasers to place purchase orders without the need to pay upfront. This allows purchasers to use funds to pay long term debts and other critical payments.
Trade credit has no cost involved, no interest is payable for using the credit.
Due to the business relationship involved, the terms and conditions attached to trade credit are simple and not rigid. Also, there is no need for an agreement for trade credit.
4.What are the schemes for disbursement of credit by bank?
(a) Commercial banks play an important role in providing short term finance to business concerns. They have become the primary source of financing working capital of the business.
(b) In India, the primary source of financing working capital is bank credit and trade credit.
(c) Commercial bank assists corporate enterprises:
• By granting term loans to companies
• By underwriting the issue of securities of the company.
• By subscribing to shares and debentures of the company.
Disbursement of credit by bank
Discounting of Bills of Exchange
The above disbursement of credit by commercial banks are as follows:
(a) Overdraft: An overdraft implies only to the existing current account holder. Therefore, it is a credit facility granted by a bank to current account holders. Under an overdraft facility, the bank allows its customers to overdraw an amount, up to a particular limit, i.e. to withdraw more than the amount of credit balance in his current account.
Generally, a low rate of interest is charged by a bank, and collateral securities usually accepted for an overdraft facility.
(b) Cash credit:
It is an important form of providing finance to business organisations. Cash Credit is given against the pledge of goods or by providing alternative securities. A cash Credit account is operated on similar lines as the overdraft facility. On the security margin, the amount of cash credit is sanctioned by the bank and the borrower can withdraw the amount from his current account up to this limit as and when the company needs.
Interest is charged on the actual amount outstanding and not the amount of credit limit sanctioned by the bank.
(c) Cash loans: Commercial Banks credit the account of the borrower with the amount of loan. The borrower has to pay interest on the entire amount sanctioned by the bank as a loan. If the amount of loan is paid in installments, the interest to be paid will be on the actual balance outstanding.
(d) Discounting of Bills of Exchange: Bills of Exchange is an acknowledgment received by the seller (drawer) from the buyer (drawee) promising to pay him a certain amount on a specific date. The drawer of the bill can receive money from drawee on the due date. The drawer can receive money before the due date by discounting of bills. This is nothing but selling the bills to the bank.
The drawer gets money immediately from the bank against the bill. The bank gives money to the drawer less than the face value of the bill. The amount received less is called a discount. They are accepted by banks and cash is advanced against them. Thus, the Bill of Exchange is Trade Bills.
5.State the features of Bonds.
A bond is a debt security. It is a loan. A bond is a formal contract to repay the borrowed money with interest. It is an interest bearing certificate issued by the government, semi-government, or business firms to raise capital. The person holding such an instrument is known as a bondholder. He becomes the creditor of the company.
According to Webster Dictionary,
“A bond is an interest bearing certificate issued by the government or business firms, promising to pay the holder a specific sum at a specified date”.
Features of Bonds are as follows:
(a) Nature of finances: A bond is a debt or loan finance. It represents long term finance of the company.
Generally, the bonds are issued for a long period. For instance, 5 years, 10 years, and so on.
(b) Status of investor: The bond holders are the creditors of the company. Being creditors and non-owners, they do not enjoy any voting rights.
They are not entitled to participate in general meetings and in the management of the company.
(c) Return on bonds:
Bonds are issued bearing a fixed rate of interest. So, the bondholders get a fixed rate of interest.
It is payable at regular intervals, but it may be paid on maturity also.
(d) Repayment: Bonds have a specific maturity date because a bond is a formal contract to pay the borrowed money. Thus, the repayment of the principal amount is due on the maturity date.
1.Equity shareholders are real owners and controllers of company.
2.Preference shares do not carry any voting rights.
3.The debentures are secured by a charge on assets of the company
Thus, it is rightly justified that, debentures are secured by a charge on assets of the company.
4.Retained earning is simple and cheapest method of raising finance.
Thus, it is rightly justified that, retained earnings is the simple and cheapest method of raising finance.
5.Public deposit is good source of short term financing.
6.Bond holder is creditor of the company.
Thus, it is rightly justified that, the bond holder is a creditor of the company
7.Trade credit is not cash loan.
8.Different investors have different preferences.
Thus, it is rightly justified that, different investors have different preferences.
9.Equity share capital is risk capital.
Thus, it is rightly justified that, equity share capital is risk capital.
1.What is share and state it’s features?
The share capital of a company is divided into many units of small denominations. Each such unit is called as a share.
In other words, a share is a small part of the total capital of a company. A person holding such shares is known as shareholders.
According to section 2 (84) of the Companies Act, 2013 “Share means a share in the share capital of the company and includes stock”.
Following are the features of Shares:
1. Meaning: Share is the smallest unit in the total share capital of a company.
2 Ownership: The owner of the share is called a shareholder. It shows the ownership of a shareholder in the company
3 Distinctive Number: Unless dematerialised, each share has a distinct number for identification. It is mentioned in the Share Certificate.
4. Evidence of title: A share certificate is issued by a company under its common seal. It is a document of title of ownership of shares. A share is not any visible thing. It is shown by share certificate or in the form of Demat share.
5. Each share has a value expressed in terms of money. There may be:
(a) Face value: This value is written on the share certificate and mentioned in the Memorandum of Association.
(b) Issue price: It is the price at which the company sells its shares.
(c) Market Value: This value of a share is determined by demand and supply forces in the share market. Rights A share confers certain rights on its holder such as the right to receive the dividend, the right to inspect statutory books, the right to attend shareholders’ meetings, and the right to vote at such meetings, etc.
7. Income: A shareholder is entitled to get a share in the net profit of the company. It is called a dividend.
8. Transferability: The shares of a public limited company are freely transferable in the manner provided in the Articles of Association
9. Property of Shareholder: Share is a movable property of a shareholder.
10. Kinds of Shares: A Company can issue two kinds of shares:
(a) Equity shares.
(b) Preference shares.
2.What is an equity share? Explain it’s features.
Equity shares are also known as ‘ordinary shares’. For legal reasons, a company can not exist without equity shares.
Companies Act 1956 defines equity share as “those shares which are not preference shares.”
Features of Equity shares are as follows:
1. Permanent capital:
Equity shares are irredeemable shares. The amount received from Equity Shares is not refundable by the company during the lifetime. Equity shares become redeemable only in the event of winding up of the company. Equity shareholders provide long term and permanent capital to the company.
2. Fluctuating Dividend:
Equity shares do not have a fixed rate of dividend. The rate of dividend depends upon the amount of profit earned by the company. If the company earns more profit, the dividend is paid at a higher rate. On the other hand, if there is insufficient profit, the Board of Directors may postpone the payment of dividends. The shareholders can not compel them to declare and pay the dividend. The income of equity shares is irregular and uncertain. They get dividends which are always fluctuating.
3. No preferential right:
Equity shareholders do not enjoy preferential rights with respect to the payment of dividends. It means equity shareholders are paid dividends only after the dividend on preference shares has been paid. At the time of winding up of the company also, the equity shareholders are paid in the last. They are the last claimants. If no surplus amount is available after paying debts and preference shares, equity shareholders will not get anything. Thus, equity shareholders stand second in case of getting dividends on their shares as well as getting back their capital at the time of liquidation of the company.
Equity shareholders enjoy certain rights. These include
The control of the company is vested in equity shareholders. They are often described as real masters of the company. It is because they enjoy the exclusive voting rights. The voting rights of equity shareholders are protected as far as possible. Equity shareholders may exercise their voting rights by proxies, without attending a meeting in person. The Act provides the right to cast vote in proportion to the number of shareholdings.
Equity shareholders participate in the management of the company. They elect their representatives called Directors on the Board for the management of the company.
Equity shareholders bear maximum risk in the company. They are described as ‘shock absorbers’ when a company has a financial crisis. If the income of the company falls, the rate of dividends also comes down. Due to this, the market value of equity shares goes down resulting in capital loss. Thus, equity shareholders are the main risk-takers.
7. Residual claimants:
Equity shareholders are owners and they are residual claimants to all earning after expenses, taxes, etc. have been paid. Although equity shareholders are the last claimants they have the advantage of receiving entire earnings that are leftover.
8. Face value:
The face value of equity shares is low, in comparison to preference shares. It is generally Rs.l0/- per share or even Rs.1/- per share.
9.Market Value :
There is more fluctuation in the market value of equity shares in comparison to other securities. Therefore, equity shares are more appealing to the speculators.
10. Bonus Issue:
Bonus shares are issued as a gift to equity shareholders. These shares are issued free of cost to existing equity shareholders. These are issued out of accumulated profits. Bonus shares are issued in proportion to the shares held. Thus capital investment of (ordinary) equity shareholder tends to grow on its own. This benefit is available only to the equity shareholder.
3.Define preference shares. What are the different types of preference shares?
As the name Indicates, these shares have certain privileges and preferential rights distinct from those attaching to equity shares. The shares which carry the following preferential rights are termed as preference shares.
1. Cumulative preference shares:
Cumulative preference shares are those shares on which dividend goes on accumulating until it is fully paid. This means, if the dividend is not paid in one or more years due to inadequate profit, then such unpaid dividend gets accumulated. The accumulated dividend is paid when the company performs well. The arrears of dividends are paid before making payment to equity shareholders The preference shares are always cumulative unless otherwise stated in the Articles of Association. It means that if the dividend is not paid in any year or falls short of the prescribed rate, the unpaid amount is carried forward to next year, and so on until all arrears have been paid.
2. Non-cumulative preference shares:
Dividend on these shares does not accumulate. This means the dividend on shares can be paid only out of profits of that year. The right to claim dividends will lapse if company does not make a profit in that particular year. If the dividend is not paid in any year, it is lost.
3.Participating preference shares:
The holders of these shares are entitled to participate in surplus profit besides preferential dividends. The surplus profit which remains after the dividend has been paid to equity shareholders up to a certain limit is distributed to preferenCe shareholders.
4.Non-participating preference shares:
The preference shares are deemed to be non-participating if there is no clear provision in the Articles of Association. These shareholders are entitled only to a fixed rate of a dividend prescribed in the issue.
5. Convertible preference shares:
These shareholders have a right to convert their preference shares into equity shares. The conversion takes place within a certain fixed period.
6. Non-convertible preference shares:
These shares cannot be converted into equity shares.
7. Redeemable preference shares:
Shares that can be redeemed after a certain fixed period are called redeemable preference shares. A company limited by shares, if authorized by Articles of Association, issues redeemable preference shares. Such shares must be fully paid. These shares are redeemed out of divisible profit only or out of a fresh issue of shares made for this purpose.
8. Irredeemable preference shares:
Shares that are not redeemable i.e. payable only on the winding up of the company are called irredeemable preference shares. As per the Companies Act (Amendment made in 1988), the company can not issue irredeemable preference shares.
4.What are preference shares? State it’s features
As the name Indicates, these shares have certain privileges and preferential rights distinct from those attaching to equity shares. The shares which carry the following preferential rights are termed as preference shares.
Features of Preference Shares are as follows:
5.What is Debenture? Discuss the different types of debentures.
Debentures have occupied a significant position in the financial structure of the companies. It is one of the main sources of raising debt capital to meet long term financial needs. Debentures represent borrowed capital. The debenture holders are creditors of the company. The debenture holder gets a fixed rate of interest as a return on his investment. The Board of Directors has the power to issue debentures.
The term ‘debenture’ has come from Latin word ‘debare’, which means to ‘owe”.
Palmer defines a debenture as –
“an instrument under seal evidencing debt, the essence of it being admission of indebtedness”.
Types of Debentures:
6.Define Debenture and explain the features of debentures.
The word debenture is derived from the Latin word, ‘Debare’ which means to owe something to someone’. A debenture is an acknowledgement of debt issued by a company under its common seal” It also means that debenture is a proof of loan taken by the company on certain terms and conditions.
Features of Debentures are as follows: