Discuss the sources from which a large industrial enterprise can raise capital for financing modernisation and expansion.

Solution

Following are the various sources of raising capital :

1. Issue of shares : Issue of shares is the most important source of raising long-term finance. It refers to a share in the share capital of the company. It is one of the units into which the share capital of a company can be divided. Those who subscribe to the share capital becomes member of the company and also called shareholders. They are the owners of the company. Two types of shares may be issued : (i) Preference shares and (ii) Equity shares. Preference shares carry a fixed rate of dividend to be paid if there are profits, where as equity shares do not carry a fixed rate of dividend.

2. Issue of Debentures : A debenture is the instrument of certificate issued by a company to acknowledge is debt. It is also an undertaking to repay the specified sum with interest to its holder. Debentures are known as creditor securities. Those who invest money in debentures are known as ‘debenture holders’. They are the creditors of the company. Debentures carry a fixed rate of interest. Debentures may be secured debentures, insecured debentures convertible debentures and non-convertible debentures.

3. Loans from financial institutions : A number of financial institutions have been set up by government with the main object of promoting industrial development. The institutions play on important role as sources of company finance. Besides, they also assist companies to raise funds from other sources.

Some More Questions From Sources of Business Finance Chapter

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Sources Of Business Finance

Discuss the sources from which a large industrial enterprise can raise capital for financing modernisation and expansion.

Some More Questions From Sources of Business Finance Chapter

Give meaning of business finance.

Give meaning of fixed capital.

Give meaning of working capital.

Give types of working capital.

Give meaning of owner’s capital.

Give meaning of borrowed capital.

Give meaning of long-term finance.

Give meaning of medium-term finance.

Give meaning of short-term finance.

Define shares.

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