DIFFERENT METHODS OF

RAISING CAPITAL.
OWNED CAPITAL VS
BORROWED CAPITAL
NAME- KUMAR HARSH
PRN- 21021021427
SECTION- D
DIFFERENT METHODS OF RAISING
CAPITAL
1-FURTHER ISSUE OF CAPITAL

 As per section 62 of the Companies Act 2013, where at any time, a company
having a share capital proposes to increase its subscribed share capital can do so
by the issue of further shares and such further shares can be offered in the
following ways: -
RIGHT ISSUE

One of the methods to infuse capital in the Company is by way of ‘Right Issue’. ‘Right Issue’ can also be defined
as the pre-emptive right that a shareholder has in the Company in preference to an outsider. The allotment of
shares by way of the right issue is governed by section 62(1)(a) of the Companies Act, 2013. As per Section 62(1)
(a), shares shall be offered to persons who, at the date of the offer, are holders of equity shares of the company
Employee stock optional plan (“ESOP”)

A private company under section 62(1)(b) of the Companies Act 2013, raise fund by issuing shares  to employees
under a scheme of employees’ stock option, subject to special resolution passed by company and subject to such
conditions as may be prescribed. Issuance of ESOP is meant to benefit both employee and employer, in which a
employee primarily invests in the stock of the sponsoring company. A company is which employee is working gives
an opportunity to that employee to buy a pre-fixed number of shares of the company

Private Placement/ Preferential Allotment Private Placement”

It means any offer of securities or invitation to subscribe securities (equity or securities that convert to equity) to a
select group of persons by a company, other than by way of public offer, through issue of a private placement offer
letter. (Section 42 of Companies Act 2013 and Rule 14 under Companies (Prospectus and Allotment of Securities)
Rules 2014) Offer to subscribe for the securities of a Company under Private Placement cannot be made to more
than 200 persons in a Financial Year
2-Loan
Apart from internal funding through the issue of share capital, the most common way chosen is borrowing funds
from Banks. This option is preferred when the funds from promoters are not sufficient to sponsor business
operations. However, these funds are raised with the cost of fixed interest at the interval of a pre-decided long-
term period. A company can accept unsecured loans from a director and their relatives with or without interest

3-Debenture

As per Section 71 of the Companies Act, 2013, a company can issue debentures with an option to convert such
debentures into shares, either wholly or partly at the time of redemption. Provided that the issue of debentures
with an option to convert such debentures into shares shall be approved by a special resolution passed by the
shareholders in a duly convened general meeting of the company. A company can issue secured and unsecured
debentures.

4-Inter-corporate Deposit

Inter-Corporate Deposit means any deposit or loan received by one company from another company. Inter-
Corporate deposits are not considered as a deposit under the Companies Act, 2013 and therefore a company can
accept a loan from any other company and it would not be considered as a deposit. Section 186 of the
Companies Act, 2013 does not apply to any loan or guarantee given by a company to its wholly-owned subsidiary
or joint venture company.
OWNED CAPITAL VS BORROWED CAPITAL
Points Owned capital Borrowed capital
It is that capital that is borrowed
1) Meaning It is that capital that is contributed by shareholders. from creditors. It is also known as
debt capital.

It is collected by way of issue of

This capital is collected by issue
debentures, fixed deposits, loan
2) Sources of equity shares and preference
from bank/financial institutions,
shares.
etc.

The shareholders get dividend as

income on their investment. Rate
The debt capital holders get interest as income on their
3) Return on Investment of dividend is fluctuating in case
investment. Interest is paid at a fixed rate.
of equity shares but fixed in case
of preference shares.

The shareholders are owners of The debt holders are creditors of

4) Status
the company. the company.

The equity shareholders enjoy

The creditors do not enjoy voting
5) Voting right normal voting right at the general
rights at the general meeting.
meeting.

The shareholders do not enjoy

priority over creditors. They are
eligible for repayment of Capital
6) 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
principal amount at the time of
winding up of the company.

The shareholders do not have

The secured debenture holders have a charge on assets of the
7) Charge on assets any charge on the assets of the
company.
company.