By going through these Maharashtra State Board Secretarial Practice 12th Commerce Notes Chapter 2 Sources of Corporate Finance students can recall all the concepts quickly.
Maharashtra State Board Class 12 Secretarial Practice Notes Chapter 2 Sources of Corporate Finance
→ No business activity can ever be pursued without financial support.
→ Finance is necessary throughout the activities of promotion, organization, and regular operations of the business.
→ The finance needed by a business organization is termed as ‘Capital’
→ Capital formation is a process of collection of capital from various sources according to the financial plan of the company.
→ The various sources of finance can be divided into owned capital and borrowed capital which may be external or internal.
→ When capital is made available from within the organization, it is an internal source of financing.
→ When capital is raised from outsiders, it is an external source of financing.
→ Owned capital is regarded as permanent capital and borrowed capital is regarded as the temporary capital.
→ The various requirements of finance can be divided into short term (maximum one year) and long term (more than a year maybe 5,10,15 years).
→ There are various methods of raising finance namely shares, debentures, bonds, retained earnings/profits, public deposits, trade credit, bank credit, ADR (American Deposit Receipts), and GDR (Global Depository Receipts)
→ A share is a small unit of the share capital of a company.
→ They may be issued at par, premium, or discount and redeemed at par or premium.
→ Equity shares do not enjoy a preference for dividends and do not have priority for payment of capital at the time of winding up of a company.
→ Equity shareholders are risk-takers and hence they are the real owners of the company.
→ Preference shares have prior right to receive a fixed rate of dividend and return of capital in the event of winding up of the company
→ Preference shareholders are cautious investors.
→ They neither take part in management nor attend the meetings and vote on resolutions.
→ They can have class meetings if their rights are to be altered or have not received dividends for more than two consecutive years.
→ The debt acknowledged by a company by issuing a debenture certificate is called a debenture.
→ Debenture holders are creditors of the company.
→ They get fixed interest as a return on their investment.
→ A bond is an instrument issued by the government or business as evidence of debt.
→ Bondholders are creditors of the company.
→ They get fixed interest as returns on their investment regularly or as per terms agreed.
→ Retained earnings is the sum total of accumulated profit that is re-invested in the business.
→ It is a cost-effective method of raising funds and is also known as self-financing/ploughing back of profits/
capitalization of Reserves.
→ A public deposit is a collateral-free loan accepted by public companies for a short period of time ranging from 6
months to 36 months.
→ The company can raise loans from banks in the form of overdraft, cash credit, cash loans discounting of bills. etc.
→ Financial institutions provide financial aid and assistance to companies.
→ Trade credit is a credit extended by manufacturers and suppliers to follow businessmen for 15 days to a
→ Discount is made available if payments are made early.
→ A Bill of exchange is a trade bill that is accepted by the bank and cash is advanced as a loan against it.
→ ADR (American Depository Receipt) and GDR ( Global Depository Receipt) are depository receipts through
which Indian Companies raise equity capital in international markets.