INTRODUCTION

Long-term sources of finance: The sources of long-term finance refer to the institutions or agencies from, or through which finance for a long period can be procured. in case of sole proprietary concerns and partnership firms, long-term funds are generally provided by the owners themselves and by the retained profits. But, in case of companies whose financial requirement is rather large, the following are the sources from, or through which long term funds are raised. Capital Market Special Financial Institutions Mutual Funds Leasing Companies Foreign Sources Retained earnings

Long term finance may be needed to fund expansion projects - maybe a firm is considering setting up new offices in a European capital, maybe they want to buy new premises in another part of the UK, maybe they have a new product that they want to develop and maybe they want to buy another company. The methods of financing these types of projects will generally be quite complex and can involve billions of pounds. It is important to remember that in most cases, a firm will not use just one source of finance but a number of sources. There might be a dominant source of funds but when you are raising hundreds of millions of pounds it is unlikely to come from just one source.

The main reasons a business needs finance are to: Start a business Finance expansions to production capacity To develop and market new products To enter new markets Take-over or acquisition Moving to new premises To pay for the day to day running of business

Choosing the Right Source of Finance: Amount of money required How quickly the money is needed. The cheapest option available. The amount of risk involved in the reason for the cash The length of time of the requirement for finance

What is the importance of long-term finance?

Companies rely heavily on long-term financing. Investment for expansions, new projects, purchases and maintenance often comes through long-term financing. Essentially, the idea of
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long-term finance is that a company borrows money in order to invest or grow, and the returns on this then enable it to pay back the debt (whilst still retaining some profit). This principle is fundamental to the idea of capital investment - and cash-flow management is the division of a business usually burdened with managing these financial transactions. Long-term finance is also relevant to personal finance in terms of mortgages and personal loans to buy high-cost items such as houses and cars.

EQUTIY SHARES

Equity shares are those shares, which are ordinary in the course of company's business. They are also called as ordinary shares. These shareholders do not enjoy preference regarding payment of dividend and repayment of capital. Equity shareholders are paid dividend out of the profits made by a company. Higher the profits, higher will be the dividend and lower the profits, lower will be the dividend.

PREFRENCE SHARES

Preference shares are hybrid securities as they include some features of both an ordinary share and a debenture. Most preference shares in India have a cumulative feature, requiring that all past outstanding preference dividends be paid before any dividend to ordinary shareholders is announced. In principle, preference shares could be redeemable, i.e., with a maturity date, or irredeemable, i.e., perpetual, without maturity date. Like debentures, a firm can issue convertible (into equity shares) or non-convertible preference shares. Preference shares provide risk less leverage advantage to the equity shareholders since preference dividend is a fixed obligation. The preference dividend is not tax deductible. Preference shares provide more flexibility and fewer burdens to the company.

RESEARCH METHODOLOGY

Research Objectives: Objectives of long-term finance are as follows: I. II. III. IV. Determining Capital requirements Determining capital structure Framing financial policies with regards to cash control, leading, borrowings, etc. A finance manager ensures that the scarcest financial resources are optimally utilized in the best possible manner at least cost in order to maximum returns on investments. V. It helps in ensuring a reasonable balance between outflow and inflow of funds so that stability is maintain. VI. It helps in malign growth and expansion programs, which helps in long run survivals of the company.

Data Collection: I. Annual Reports of Infosys 2011-12

II. III.

Annual Report of Wipro 2011-12 Literature review from reference books

Types Of Research: Secondary Research: Secondary research is based on information from studies previously performed by government agencies, chamber of commerce, trade associations, and other organization. Example - Indian census burro information is a secondary market Research. We have taken secondary data from annual reports and literature reviews for studying the changes in equity and preference shares of companies of IT sector.

FINDINGS
To understand how equity shares and preference shares have been utilize for asset finding with special reference to It industry.

FEATURES OF EQUITY SHARES: Claim on Income:

As you know, equity shareholders have a claim to the residual income, that is, the income left after paying expenses, interest charges, taxes, preference dividend, if any. Usually, a part of the residual income is distributed in the form of dividend to the shareholders and other part called retained earnings is reinvested in the business. Retained earnings are ultimately benefit the shareholders in the form of firm's enhanced value and earning power and ultimately increase dividend and capital gain of the shareholders. Thus, dividends benefit the shareholders in the form of immediate cash flows whereas the retained earnings give them benefit in the form of capital gains but not immediately. Claim on Assets: In case of liquidation of the company, equity shares are the last ones to be paid. They are paid after the claim of debt-holders and preference shareholders have been satisfied. In case of liquidation due to bad financial state of affairs, the equity shareholders generally remain unpaid Right to Control:

Right to control here means the power to take decisions, frame major policies and power to appoint directors. Equity shareholders have the legal power to elect directors on the board and also to replace them if the board fails to protect interest of the shareholders. Voting rites: Each equity share carries one vote. Directors are elected in the annual general meeting by the majority votes. Thus, every shareholder can participate in the vital affair of election of directors and cast his vote depending on the number of shares held by him. Shareholders are entitled to vote in person or by proxy. Limited Liability: In a company limited by shares, an equity shareholder's liability is limited to the amount of investment in his respective share. If his shares are fully paid up, he doesn't have to contribute anything in the event of financial stress or winding up of his company. Whereas in case of a soletrader concern or a partnership firm, the liability of owner/owners is unlimited which requires them to sell their personal assets and satisfy the claims of creditors in the event of insolvency of these firms

Preemptive Rights:

It entitles a shareholder to maintain his proportionate share of ownership in the company. The law grants shareholders the right to purchase new shares in the same proportion as their current ownership. Thus, if a shareholder owns 1 percent of the companys ordinary shares, he has preemptive right to buy 1 percent of new shares issued. A shareholder may decline to exercise this right.

PROCESS OF ISSUING EQUITY SHARES 1. Public Issue of Equity

Public issue of equity means raising of share capital directly from the public. IPO Initial Public Offering Public issues can be classified into Initial Public offerings and further public offerings. In a public offering, the issuer makes an offer for new investors to enter its shareholding family. The issuer company makes detailed disclosures as per the DIP guidelines in its offer document and offers it for subscription. Initial Public Offering (IPO ) is when an unlisted company makes either a fresh issue of securities or an offer for sale of its existing securities or both for the first time to the public. This paves way for listing and trading of the issuers securities. IPO is New shares Offered to the public in the Primary Market .The first time the company is traded on the stock exchange. A prospectus is issued to read about its risk before investing. IPO is A company's first sale of stock to the public. Securities offered in an IPO are often, but not always, those of young, small companies seeking outside equity capital and a public market for their stock. Investors purchasing stock in IPOs generally must be prepared to accept very large risks for the possibility of large gains. Sometimes, Just before the IPO is launched, Existing share Holders get a very liberal bonus issues as a reward for their faith in risking money when the project was new.

2. Underwriting of Issues It is legally obligatory to underwrite a public and a rights issue. In an underwriting, the underwriters generally banks, financial institutions, brokers, etc guarantee to buy the shares if the issue is not fully subscribed by the public. The agreement may provide for a firm buying by the underwriters. The company has to pay an underwriting commission to the underwriters for their services.

3. Private Placement Private Placement involves sale of shares by the company to few selected investors, particularly the institutional investors like the UTI, LIC, IDBI etc. Private placement benefits are its helpful

in issuing small amount of funds. It is less expensive; in case of public issue of securities the issue costs are quite high ranging between 10 to 20 percent of the size of the issue. A substantial part of these costs can be avoided through private placement. It takes less time to raise funds through private placement less than 3 months. Public issue involves a number of requirements to be fulfilled, and this requires a lot of time to raise capital.

PROS AND CONS OF EQUITY SHARES

PROS: Permanent Capital Since ordinary shares are not redeemable, the company has no liability for cash outflow associated with its redemption. It is a permanent capital, and is available for use as long as the company goes.

Borrowing Base The equity capital increases the companys financial base, and thus its borrowing limit. Lenders generally lend in proportion to the companys equity capital. By issuing ordinary shares, the company increases its financial capability. It can borrow when it needs additional funds.

Dividend Payment Discretion A company is not legally obliged to pay dividend. In times of financial difficulties, it can reduce or suspend payment of dividend. Thus, it can avoid cash outflow associated with ordinary shares. A company cuts dividend only when it cannot manage cash to pay dividends.

CONS: Cost Shares have a higher cost at least for two reasons. Dividends are not tax deductible as are interest payments, and the floatation costs on ordinary shares are higher than those on debt.

Risk Ordinary shares are riskier from investors point of view as there is uncertainty regarding dividend and capital gains. Therefore, they require a relatively higher rate of return. This makes equity capital as the highest cost source of finance.

Earnings Dilution The issue of new ordinary shares dilutes the existing shareholders earnings per share if the profits do not increase immediately in proportion to the increase immediately in proportion to the increase in the number of ordinary shares.

Ownership Dilution The issuance of new ordinary shares may dilute the ownership and control of te existing shareholders. While the shareholders have a preemptive right to retain their proportionate

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ownership, they may not have funds to invest in additional shares. Dilution of ownership assumes great significance in the case of closely held companies.

FEATURES OF PREFRENCE SHARES

Claims on Income and Assets A preference share is a senior security as compared to an ordinary share. It has a prior claim on the companys income in the sense that the company must first pay preference dividend before paying ordinary dividend. It also has a prior claim on the companys assets in the event of liquidation. The preference share claim is honored after that of a debenture and before that of ordinary share. Thus in terms of risk preference share are less risky than ordinary shares. Preference shares holders do not have voting rights.

Fixed Dividend The dividend rate is fixed in the case of a preference share, and preference dividends are not tax deductible. The preference dividend rate is expressed as a percentage of the par value. The amount of preference dividend will thus be equal to the dividend rate multiplied by the par value. Preference share is called fixed income security because it provides a constant income to investors. The payment of preference dividend is not a legal obligation.

Cumulative Dividends

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Most preference shares in India carry a cumulative dividend feature, requiring that all past unpaid preference dividend are to paid before any ordinary dividend are paid. This feature is a protective device for preference shareholders. The preference dividends could be omitted or passed without the cumulative feature. Preference shareholders do not have power to force company to pay dividend also does not result into insolvency. Since preference share does not have the dividend enforcement power, the cumulative feature is necessary to protect the rights of preference shareholders.

Redemption Both redeemable and perpetual preference shares can be issued. Perpetual preference share does not have a maturity date . redeemable preference share in India are often not retired in accordance with the stipulation since there are no serious penalties for the violation of redemption feature.

Sinking Fund Like debentures, sinking fund provision may be created to redeem preference share. The money set aside for this purpose may be used either to purchase preference share in the open market or to buy back the preference share. Sinking funds for preference shares are not common.

Call Feature The call feature permits the company to buy back preference shares at a stipulated buy- back or call price. The call price may be higher than the par value. Usually, it decreases with the passage of time. The difference between call price and par value of the preference share is called call premium.

Participation Feature

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It may have participating feature in some cases which entitles the preference shareholders to participate in extraordinary profit earned by the company. This means that a preference shareholder may get dividend amount in excess of the fixed dividend. Preference shareholders may also be entitled to participate in the residual assets in the event of liquidation.

Voting Rights Preference shareholders ordinarily do not have any voting rights. They may be entitled to contingent or conditional voting rights. In India, if a preference dividend is outstanding for two or more years in the case of cumulative preference shares, or the preference dividend is outstanding for two or more consecutive preceding years or for a period of three or more years in the preceding six years.

Convertibility It may be convertible or non-convertible. A convertible preference share allows preference shareholders to convert their preference shares, fully or partly, into ordinary shares, at a specified price, during a given period of time. Preference shares, particularly when the preference dividend rate is low, may sometimes be converted into debentures.

PROS AND CONS OF PREFRENCE SHARES

PROS: Riskless Leverage Advantage

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Preference share provides financial leverage advantages since preference dividend is a fixed obligation. This advantage occurs without a serious risk of default. The non-payment of preference dividends does not force the company into insolvency.

Dividend Postponability Preference share provides some financial flexibility to the company since it can postpone the payment of dividend.

Fixed dividend The preference dividend payments are restricted to the stated amount. Thus preference shareholders do not participate in excess profits as do the ordinary shareholders.

Limited Voting Preference shareholders do not have voting rights except in case dividend arrears exist. Thus, the control of ordinary shareholders is preserved.

CONS: Non-deductibility of Dividends The primary disadvantage of preference share is that preference dividend is not tax deductible. Thus, it is costlier than debenture.

Commitment to pay Dividend

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Although preference dividend can be omitted, they may have to be paid because of their cumulative nature. Non-payment of preference dividends can adversely affect the image of a company, since equity holders cannot be paid any dividends unless preference shareholders are paid dividends.

INFOSYS

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DIVIDEND

Our policy is to pay dividend of up to 30% of the consolidated net profit after tax of the Infosys group.

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In October 2011, we paid an interim dividend of Rs.15/- per share. We recommended a final dividend of Rs.22/- per share and a special dividend of rs.10/- per share on account of competition of 10 years of Infosys BPO operations (par value of Rs.5/- each), making in all Rs.47/- per share as dividend for the year. The total dividend amount pay out is Rs.2699 core, as against Rs.3445 core in the previous year. The dividend for the previous years includes the 30th year special dividend of Rs.30 per share amounting to Rs.1722 core. Dividend (including dividend tax) excluding special dividend as a percentage of consolidated net profit after is 29.7% as compares to 29.3% in the previous year. The register of members and share transfer books will remain closed from may 26, 2012 to june 9 , 2012(both days inclusive). Our Annual General Meeting is scheduled to held on June 9, 2012. Dividend received of Rs.484 corer, net of taxes of Rs.94 corer from the wholly-owned subsidiary, Infosys Australia Pty.Limited. 10 years of Infosys BPO operations for 2012 and 30th year special dividend for 2011. Equity shares are at par value of Rs.5/- each.

SHARE CAPITAL

At present we have only one class of shares- equity share of par value Rs.5/- each. Our authorized share capital is Rs.300 core, dividend into 60 core equity share of Rs5/- each. The issued, subscribed and paid up capital stood at Rs.287 core as at March 31, 2012 (same as the previous year). During the year, employees exercised 49,590 equity shares issued under the 1998 stock option plan and 28,852 equity share issued under the 1999 stock option plan. Consequently the issued, subscribed and outstanding shares increased by 78,442. The details of options granted, outstanding and vested as at March 31, 2012, are provided in the noted to the consolidated financial statements section in the annual report.

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INCREASE IN SHARE CAPITAL

During the year, we issued 78,422 shares on the exercise of stock options under the 1998 and 1999 employee stock option plans. As a result of this, the outstanding issued, subscribed and paid-up equity shares increased from 57,41,51,559 to 57,42,30,001 shares as at march 31, 2012.

SHAREHOLDER FUNDS

The total shareholder fund increased to Rs.29,757 crore as at march 31, 2012 from Rs. 24,501 crore as of the previous year end. The book value per share increased to Rs.518.21 as at March 31, 2012, compared to Rs. 426.73 as of the previous year end.

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WIPRO

Dividend

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Your Directors recommend a final Dividend of 200% (Z 4/- per equity share of Z 2/- each) to be appropriated from the profits of the year 2011-12, subject to the approval of the shareholders at the ensuing Annual General Meeting. The Dividend will be paid in compliance with applicable regulations. During the year 2011-12, unclaimed dividend of Z 5,731,075/- was transferred to the Investor Education and Protection Fund, as required under the Investor Education and Protection Fund (Awareness and Protection of Investor) Rules, 2001.

Interim Dividend Pursuant to the approval of Board of Directors on January 20, 2012, your company had distributed an interim dividend of 2/- per share, of face value of Z 2/- each, to shareholders, who were on the Register of Members of the company as at closing hours of January 25, 2012, being the record date fixed by the Board of Directors for this purpose. Interim Dividend was paid on February 3, 2012.

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out of 11.406,331 equity shares shown under IIA)(c). 10.843.333 equity shares ore held by Azle, Premji Foundation (I) PvtLtd. Mr.Premji is also the promoter Director of Azim Pt erti Foundation (II Pvt. Ltd.Thcse shares are included under "Promoter Category'. Out 01 13,420,040 shares held by other Trusts. 13,226,600 equity shares are held by Moro Equity Reward Trust. **Theshareholding comprises of 39,999 sha res held by 3 Nat Executive Di rectors & relatives ard 116.095 shares held by 2 Executive non promoter Directors and relatives. nese directors not being Promoter Directors and in as much as they do not exercise any significant control over the company, they ore classified under 'Any Other-category. Note :"Promoter shareholding' and 'Promoter Group'andPublic shareholding'as per Clause 40A of the Listing Agreement. The details of outstanding employee stock options as on March 31, 2012 J re provided in Annexu re B

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to the Director's Report, as per SEBI ;ESOP ESPP) Guidelines. 1999 as amended from time to time.

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Earnings per share and number of shares outstanding for the year ended March 31, 2011 have been adjusted for the two equity shares for every three equity shares stock dividend approved by the shareholders on June 4, 2010. xvii. Earnings per share Bair The number of equity shares used in computing basic earnings per share is the weighted average number of shares outstanding during the year excluding equity shares held by controlled trust. Diluted; The number of equity shares used in computing diluted earnings per share comprises the weighted average number of equity shares considered for deriving basic earnings per share, and also the weighted average number of equity shares that could have been issued on the conversion of all dilutive potential equity shares. Dilutive potential equity shares are deemed converted as of

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the beginning of the period, unless issued at a later date.The number of equity shares and potentially dilutive equity shares are adjusted for any stock splits and bonus shares issued.

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(v) Frwity and share capital

a) Share capital and share premium The Company has only one class of equity shares.The authorized share capital of the Company is 2,650,000,000 equity shares, par value Z 2 per share. Par value of the equity shares is recorded as share capital and the amount received in excess of par value is classified as share premium. Every holder of the equity shares, as reflected in the records of the Company as of the date of the shareholder meeting shall have one vote in respect of each share held for all matters submitted to vote in the shareholder meeting. b) Shares held by controlled trust (Treasury shares) The Company's equity shares held by the controlled trust which is consolidated as a part of the Group are classified as Treasury Shares. The Company has 14,841,271 treasury shares as of March 31, 2011 and 2012, respectively. Treasury shares are recorded at acquisition cost. c) Retained earnings Retained earnings comprises of the Company's prior years' undistributed earnings after taxes. A portion of these earnings amounting to Z 1,144 is not freely available for distribution.

d) Share based payment reserve The share based payment reserve is used to record the value of equity-settled share based payment transactions with employees. The amounts recorded in share based payment reserve are transferred to share premium upon exercise of stock options by employees. e) Cash flow hedging reserve Changes in fair value of derivative hedging instruments designated and effective as a cash flow hedge are recognized in other comprehensive income (net of taxes), and presented within equity in the cash flow hedging reserve. f) Foreign currency translation reserve The exchange difference arising from the translation of financial statements of foreign subsidiaries, differences arising from translation of long-term intercompany receivables or payables relating to foreign operations, changes in fairvalue of the derivative hedging instruments and gains/losses on translation or settlement of foreign currency

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denominated borrowings designated as hedge of net investment in foreign operations are recognized in other comprehensive income, and presented within equity in the FCTR. g) Other reserve Changes in the fair value of available for sale financial assets is recognized in other comprehensive income (net of taxes), and presented within equity in other reserve. h) Dividend A final dividend, including tax thereon, on common stock is recorded as a liability on the date of approval by the shareholders. An interim dividend, including tax thereon, is recorded as a liability on the date of declaration by the board of directors.

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CONCLUSION

During the research of this assignment we conducted the flowing conclusion: Many types of finance can be use at one particular time. Depending on the types of company and they should try to get the best possible finance deal To save the borrower on the risk of borrowing high amount and also to pay high amount on interest rate. There are different sources of funds available to meet long term financial needs of the business. These sources may be broadly classified into: Share capital (both equity and preference) &Debt (including debentures, long term borrowings or other debt instruments). The different sources of long term finance can now be discussed: Owners Capital or Equity Capital A public limited company may raise funds from promoters or from the investing public by way of owners capital or equity capital by issuing ordinary equity shares. Some of the characteristics of Owners/Equity Share Capital are: It is a source of permanent capital. The holders of such share capital in the company are called equity shareholders or ordinary shareholders. Equity shareholders are practically owners of the company as they undertake the highest risk. Equity shareholders are entitled to dividends after the income claims of other stakeholders are satisfied. The dividend payable to them an appropriation of profits and not a charge against profits. In the event of winding up, ordinary shareholders can exercise their claim on assets after the claims of the other suppliers of capital have been met.

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The cost of ordinary shares is usually the highest. This is due to the fact that such shareholders expect a higher rate of return (as their risk is the highest) on their investment as compared to other suppliers of long-term funds.

Ordinary share capital also provides a security to other suppliers of funds. Any institution-giving loan to a company would make sure the debt-equity ratio is comfortable to cover the debt. Advantages and disadvantages of raising funds by issue of equity shares are : (I) It is a permanent source of finance. Since such shares are not redeemable, the company has no liability for cash outflows associated with its redemption. (ii) Equity capital increases the companys financial base and thus helps further the borrowing powers of the company. (iii) The company is not obliged legally to pay dividends. Hence in times of uncertainties or when the company is not performing well, dividend payments can be reduced or even suspended. (iv) The company can make further issue of share capital by making a right issue.

Apart from the above-mentioned advantages, equity capital has some disadvantages to the company when compared with other sources of finance. These are as follows: (i) The cost of ordinary shares is higher because dividends are not tax deductible and also the floatation costs of such issues are higher. (ii) Investors find ordinary shares riskier because of uncertain dividend payments and capital gains. (iii) The issue of new equity shares reduces the earning per share of the existing shareholders until and unless the profits are proportionately increased. (iv)The issue of new equity shares can also reduce the ownership and control of the existing shareholders.
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Preference Share Capital These are a special kind of shares; the holders of such shares enjoy priority, both as regards to the payment of a fixed amount of dividend and repayment of capital on winding up of the company. Some of the characteristics of Preference Share Capital are: shares. Such shares are normally cumulative, i.e., the dividend payable in a year of loss gets carried over to the next year till there are adequate profits to pay the cumulative dividends. The rate of dividend on preference shares is normally higher than the rate of interest on debentures, loans etc. Most of preference shares these days carry a stipulation of period and the funds have to be repaid at the end of a stipulated period. Preference share capital is a hybrid form of financing which imbibes within itself some characteristics of equity capital and some attributes of debt capital. It is similar to equity because preference dividend, like equity dividend is not a tax deductible payment. It resembles debt capital because the rate of preference dividend is fixed. Cumulative Convertible Preference Shares (CCPs) may also be offered, under which the shares would carry a cumulative dividend of specified limit for a period of say three years after which the shares are converted into equity shares. These shares are attractive for projects with a long gestation period. Preference share capital may be redeemed at a pre decided future date or at an earlier stage inter alia out of the profits of the company. This enables the promoters to withdraw their capital from the company which is now self-sufficient, and the withdrawn capital may be reinvested in other profitable ventures. It may be mentioned that any company cannot issue irredeemable preference shares.
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Long-term funds from preference shares can be raised through a public issue of

ANNEXURE

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