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Corporate Finance
In the corporate finance we have to deal with rasising and using of finance by a
corporation. It deals with financing the activities of the corporation, capital
structuring and making investment decisions

We Have to major point in the Corporate Finance

1. Financing Decision
2. Investment Decision

Financing Decision Investment Decision

The business firm has access to capital market to fulfill the
financial need. The firm has multiple choice of source of
finicing.The firm can chose whether it wants to raise equity
capital or debt capital .firm can even opt for bank
loan,public,deposit,debentures etc.
Once the firm has gained access to capital the finance
manger has take decision regarding the use of the funds
in systematic manner so that it will bring maximum
return for its owners. For this the firm has to take into
consideration the cost of capital once they know the cost
of capital.
 Importance Of Corporate Finance
1. Helps in decision making 4. Helps in smooth running of business firm
2. Helps in raising capital for project 5. Managing Risk
3. Helps in research and development 6. Replace old assets
Most of the important decisions of business enterprise are
Helps in decision making determined on the basis of availability of funds. It is difficult to
perform any function of business enterprise independently without
finance.

Whenever a business firm wants to start a debentures, bonds or even by

Helps in raising capital for project
Helps in research and development
Helps in smooth running of business firm
taking loans from the banks.
Research and Development must be undertaken for the growth and
expansion of business. Detailed technical work is essential for the
execution of projects.
A smooth flow of corporate finance is needed so that salaries of
employees are paid on time, loans are cleared on time, raw material is
purchased whenever required, ales promotion of existing products is
carried out smoothly and new products can be launched effectively.

Managing Risk Company has to manage several risks, such as sudden fall in sales, loss
due to natural calamity, loss due to strikes, etc. Company needs financial
aid to manage such risks.
Replace old assets Assets such as plant and machinery become old and outdated over the
years. They have to be replaced by new assets. Finance is required to
purchase new assets.
Capital

1 - Fixed Capital

2 - Working Capital
 1 – Fixed Capital
Fixed capital is the capital which is used for buying fixed assets
which are used for a longer period of time in the business. These
assets are not meant for resale. In simple words fixed capital refers
to capital invested for acquiring fixed assets. It stays in the business
for long period almost permanently. Examples of fixed capital are
capital used for purchasing land and building, furniture, plant and
machinery etc. Such capital is required usually at the time of
establishment of a new company. However, existing companies may
also need such capital for their expansion and development,
replacement of equipment's, etc.
Factors affecting fixed capital requirement

 Nature of business
 Size of business
 Scope of business
 Extent of lease or rent
 Arrangement of sub-contract
 Alguisition of old assets
 Nature of business

Manufacturing industries and public utilities

have to invest huge amount of funds to acquire
fixed assets. While Trading business may not
need huge investments in fixed assets
 Size of business

Where a business firm is set up to carry on large scale operations,

its fixed capital requirements are likely to be high. It is because
most of their production processes are based on automatic
machines and equipment's.
 Scope of business
There are business firms which are formed to carry
on production or distribution on a large scale. Such
businesses would require more amount of fixed
capital.
 Extent of lease or rent
If entrepreneur decides to acquire assets on lease
or on rental basis, less amount of funds for fixed
assets will be needed for the business.
 Arrangement of sub-contract

If the business wants to sub-contract some

processes of production to others, limited assets
are required to carry out the production.
 Acquisition of old assets
If old equipment and plants are available
at low prices, then it would reduce the
need for investment in fixed assets.
 Working capital
Working capital is the capital which is used to carry out the day to day
business activities. After estimating fixed capital requirement of the
business firm, it is necessary to estimate the amount of capital, that
would be needed to ensure smooth functioning of the business firm. A
business firm requires funds to store adequate raw material in stock. A
firm would need capital to maintain sufficient stock of finished goods.
Factors affecting working capital
requirement
 Nature of business
 Size of business
 Volume Sales
 Production Cycle
 Businees Cycle
 Growth and Expansion
 Nature of business
Firms engaged in manufacturing essential products of daily consumption
would need relatively less working capital as there would be constant
and sufficient cash inflow inthe firm to take care of liabilities. Likewise
public utility concerns have to maintain small working capital because of
continuous flow of cash from their customers.
 Size of business
The size of business also affects the requirement of
working capital. A firm with largescale operations
will require more working capital.
 Volume Sales
 Thisis the most important factor affecting size of working capital. The
volume of sales and size of working capital are directly related with
each other. If volume of sales increases, there is an increase in the
amount of working capital and vice a versa.
 Production Cycle
The process of converting raw material into
finished goods is called production cycle. If the
period of production cycle is longer, then firm
needs more amount of working capital. If
manufacturing cycle is short, it requires less
working capital.
 Businees Cycle
When there is a boom in the economy, sales will
increase. This will lead to increase in investment in
stocks. This requires additional working capital.
During recession, sales will decline and hence the
need of working capital will also decline. Terms of
purchases and sales
 Growth and Expansion
The working capital requirement of a firm will
increase with growth of a firm. A growing company
needs funds continuously to support large scale
operations.
 Capital Structure
 A company can raise its capital from different sources, i.e. owned
capital or borrowed capital or both. The owned capital consists of
equity share capital, preference share capital, reserves and surplus. On
the other hand, borrowed sources are debentures, loans, etc. A
combination of different sources are used in capital structure.
 Definition
 R. H. Wessel : " The long term sources of funds employed in a
business enterprise".
 Components of Capital Structure
 There are four basic components of capital structure. They are as follows:
 (1) Equity share capital : It is the basic source of financing activities of business. Equity shares
are shares which get dividend and repayment of capital after it is paid to preference shares.
They own the company. They bear ultimate risk associated with ownership. They carry
dividend at fluctuating rate depending upon the profit
 (2) Preference share capital : Preference shares carry preferential right as to payment of
dividend and have priority over equity shares for return of capital when the company is
liquidated. These shares carry dividend at fixed rate.
 (3) Retained earnings : It is internal source of financing. It is nothing but ploughing back of
profit.
 (4) Borrowed capital: It comprises the following)
 (a)Debenture It is acknowledgement of loans raised by company. Company has to pay interest
agreed rate.
 (b) Term loan :Tern loans are provided by bank and other financial institutions. They carry
fixed rate of interest. To understand the above concept, we shall consider following Balance
sheet and calculate the values
 TOPIC NAME

SOURCE OF CORPORATE FIN

ANCE
 Sources of finance based on types of capital

Owned capital Borrowed capital

Retained
Shares 1. Debentures
earnings
2. Public deposits
3. Bond
4. ADR/ GDR
Preference
Equity shares
shares
5. Loans form
banks and
financial
institutions
6. Trade credit
 WHAT ARE THE SOURCES OF OWNED
CAPITAL ?
1) THE CAPITAL RAISED BY A COMPANY WITH THE HELP OF OWNERS IS CALLED
OWNED CAPITAL OR OWNERSHIP CAPITAL. THE SHAREHOLDERS PURCHASE
SHARES OF THE COMPANY AND SUPPLY NECESSARY CAPITAL. IT IS ONE FORM
OF OWNED CAPITAL.
2) ANOTHER FORM OF OWNED CAPITAL IS RETAINED EARNINGS. IT IS ALSO
KNOWN AS PLOUGHING BACK OF PROFIT. IT IS REINVESTMENT OF PROFIT IN
THE BUSINESS BY THE COMPANY ITSELF. IT IS AN INTERNAL SOURCE OF
FINANCE.
3) EQUITY SHARE CAPITAL IS REGARDED AS A PERMANENT CAPITAL SINCE IT IS
RETURNED ONLY AT THE TIME OF WINDING UP OF THE COMPANY.
4) OWNED CAPITAL IN THE FORM OF SHARE CAPITAL IN THE FORM OF SHARE
CAPITAL PROVIDES INITIAL SOURCE OF CAPITAL FOR A NEW COMPANY. IT CAN
 WHAT IS SHARES ?

A SHARE IS UNIT BY WHICH THE SHARE CAPITAL IS DIVIDEND. THE TOTAL CAPITAL
OF A COMPANY IS DIVIDEND INTO SMALL PARTS AND EACH PART IS CALLED A
SHARE. THE VALUE OF EACH PART OR UNIT KNOWN AS FACE VALUE. SHARE
FACILITATES THE PUBLIC TO SUBSCRIBE TO THE CAPITAL IN SMALLER AMOUNT.
 TYPES OF SHARES

• EQUITY SHARES & PREFERENCE

SHARES
 EQUITY SHARES
• EQUITY SHARES ARE FUNDAMENTAL SOURCE OF FINANCING BUSINESS ACTIVITIES.
• THESE SHARES ARE ALSO KNOWN AS ORDINARY SHARES.
• EQUITY SHAREHOLDERS ARE THE REAL OWNERS OF THE COMPANY AS THEY BEAR ULTIMATE RISK
ASSOCIATED WITH THE OWNERSHIP.
• EQUITY SHAREHOLDERS ARE ‘RESIDUAL CLAIMANTS’ OF THE INCOME AND ASSETS.
• EQUITY SHAREHOLDERS PARTICIPATE IN THE MANAGEMENT OF THEIR COMPANY.
• THEY ARE INVITED TO ATTEND GENERAL MEETINGS AND ARE ALLOWED TO VOTE ON ALL MATTERS.
• THEY ELECT THEIR REPRESENTATIVES TO MANAGE THE COMPANY AND THEY ARE CALLED AS
DIRECTORS.
Equity shareholder when
company does not make profit
 FEATURES OF EQUITY SHARES

1) PERMANENT CAPITAL:- EQUITY SHARES IRREDEEMABLE SHARES. THE AMOUNT RECEIVED

FROM EQUITY SHARES IS NOT REFUNDABLE BY THE COMPANY DURING ITS LIFE TIME.
EQUITY SHARES BECOME REFUNDABLE ONLY IN THE EVENT OF WINDING UP OF THE
COMPANY OR WHEN THE COMPANY DECIDES TO BUY BACK SHARES. THUS, EQUITY SHARE
CAPITAL IS LONG-TERM AND PERMANENT CAPITAL OF THE COMPANY.
2) FLUCTUATING DIVIDEND:- EQUITY SHARES DO NOT HAVE A FIXED RATE OF DIVIDEND. THE
RATE OF DIVIDEND DEPENDS UPON THE AMOUNT OF PROFITS EARNED BY THE COMPANY. IF A
COMPANY EARNS MORE PROFIT, DIVIDEND IS PAID AT A HIGHER RATE. ON THE OTHER HAND,
IT THERE IS INSUFFICIENT PROFIT OR LOSS, THE BOARD OF DIRECTORS MAY POSTPONE THE
PAYMENT OF DIVIDEND. THE EQUITY SHARES GET DIVIDEND AT A FLUCTUATING RATE.
3) RIGHTS:- EQUITY SHAREHOLDERS ENJOY CERTAIN RIGHTS AS FOLLOWS:
I. RIGHT TO VOTE: IT IS THE BASIC RIGHT TO EQUITY SHAREHOLDERS THROUGH
WHICH THEY ELECT DIRECTORS AS WELL AS ALTER MEMORANDUM AND ARTICLE
OF ASSOCIATION, ETC.
II. RIGHT TO SHARE IN PROFIT: IT IS AN IMPORTANT RIGHT EQUITY SHAREHOLDERS.
THEY HAVE RIGHT TO SHARE IN PROFIT. IF THE COMPANY IS SUCCESSFUL AND
MAKES HANDSOME PROFIT, THEY HAVE ADVANTAGE OF GETTING LARGE
DIVIDEND.
III. RIGHT TO INSPECT BOOKS: EQUITY SHAREHOLDERS HAVE RIGHT TO INSPECT
STATUTORY BOOKS OF THEIR COMPANY.
IV. . RIGHT TO TRANSFER SHARES: EQUITY SHAREHOLDERS ENJOY THE RIGHT TO
TRANSFER SHARES AS PER THE PROCEDURE LAID DOWN IN THE ARTICLE OF
ASSOCIATION.
4) NO PREFERENTIAL RIGHT:- EQUITY SHAREHOLDERS DO NOT ENJOY
PREFERENTIAL
RIGHT IN RESPECT OF PAYMENT OF DIVIDEND. THEY ARE PAID DIVIDEND ON
PREFERENCE SHARES HAS BEEN PAID.
5) CONTROLLING POWER:- THE CONTROL OF THE COMPANY IS IN THE HANDS OF
EQUITY SHAREHOLDERS. THEY ARE OFTEN DESCRIBED AS ‘REAL MASTERS’ OF
THE COMPANY. IT IS BECAUSE THE ENJOY EXCLUSIVE VOTING RIGHT. THE
COMPANIES ACT, 2013 PROVIDES THE RIGHT TO CAST VOTE IN PROPORTION TO
SHAREHOLDING. THEY CAN PARTICIPATE IN THE MANAGEMENT AND AFFAIRS OF
THE COMPANY THEY ELECT THEIR REPRESENTATIVES CALLED AS ‘DIRECTORS’
AT THE GENERAL MEETING THEY ARE ALLOWED TO VOTE ON ALL MATTERS
DISCUSSED AT THE GENERAL MEETING. THUS, EQUITY SHAREHOLDERS ENJOY
CONTROL OVER THE COMPANY.
6) RISK:- EQUITY SHAREHOLDERS BEAR MAXIMUM RISK IN THE COMPANY. THEY
DESCRIBED AS ‘SHOCK ABSORBERS’ WHEN A COMPANY FACES FINANCIAL CRISIS.
IF THE INCOME OF A COMPANY FALLS, THE RATE OF DIVIDEND ALSO COME
DOWN. DUE TO THIS, MARKET VALUE OF EQUITY SHARES COMES DOWN,
RESULTING INTO CAPITAL LOSS. THUS, EQUITY SHAREHOLDERS ARE MAIN RISK
TAKERS.
7) RESIDUAL CLAIMANT:- EQUITY SHAREHOLDERS ARE RESIDUAL CLAIMANTS TO
ALL EARNINGS AFTER EXPENSES, TAXES, ETC. ARE PAID A RESIDUAL CLAIM
MEANS THE LAST CLAIM ON THE EARNINGS OF A COMPANY.
8) NO CHARGE ON ASSETS:- EQUITY SHARES DO NOT CREATE ANY CHARGE OVER
ASSETS OF THE COMPANY.
9) 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. THIS
BENEFIT IS AVAILABLE TO THE EQUITY SHAREHOLDERS
10) RIGHT ISSUE:- WHEN ACCOMPANY NEEDS MORE FUNDS FOR EXPANSION AND
RAISES FURTHER CAPITAL THROUGH ISSUE OF SHARES, THE EXISTING EQUITY
SHAREHOLDERS MAY BE GIVEN PRIORITY TO GET NEWLY OFFERED SHARES.
THIS IS CALLED ‘RIGHT ISSUE’.
11) FACE VALUE:- THE FACE VALUE OF EQUITY SHARES IS LOW. IT CAN BE
GENERALLY ₹ 10 PER SHARE OR EVEN ₹ 1 PER SHARE.
 PREFERENCE SHARES
• PREFERENCE SHARES HAVE CERTAIN PREFERENTIAL RIGHTS DISTINCT FROM
THOSE ATTACHED TO EQUITY SHARES.
• THE PREFERENCE SHAREHOLDERS ARE CO-OWNERS OF THE COMPANY BUT NOT
CONTROLLERS.
• THESE SHARES ARE PURCHASED BY CAUTIOUS INVESTORS WHO ARE
INTERESTED IN SAFETY OF INVESTMENT AND WANT STEADY RETURNS.

No
Preference shareholders getting
fixed dividend while company is in loss.

Image
 FEATURES OF PREFERENCE SHARES
1) PREFERENCE FOR DIVIDEND :- PREFERENCE SHARES HAVE THE FIRST CHARGE
ON THE DISTRIBUTABLE AMOUNT OF ANNUAL NET PROFIT. THE DIVIDEND IS
PAYABLE TO PREFERENCE SHAREHOLDERS BEFORE IT IS PAID TO EQUITY
SHAREHOLDERS.
2) PREFERENCE FOR REPAYMENT OF CAPITAL :- PREFERENCE SHAREHOLDERS
HAVE A PREFERENCE OVER EQUITY SHAREHOLDERS IN RESPECT OF RETURN OF
CAPITAL WHEN THE COMPANY IS LIQUIDATED. IT SAVES PREFERENCE
SHAREHOLDERS FROM CAPITAL LOSSES.
3) FIXED RETURN :- PREFERENCE SHARES CARRY DIVIDEND AT A FIXED RATE. THE
RATE OF DIVIDEND IS PRE-DETERMINED AT A TIME ISSUE. IT MAY BE IN THE FORM
OF FIXED SUM OR MAY BE CALCULATED AT FIXED RATE. THE PREFERENCE
SHAREHOLDERS ARE ENTITLED TO DIVIDEND WHICH CAN BE PAID ONLY OUT OF
PROFITS.
4) NATURE OF CAPITAL :- PREFERENCE SHARES DO NOT PROVIDE PERMANENT
SHARE CAPITAL. THEY ARE REDEEMED AFTER A CERTAIN PERIOD OF TIME. A
COMPANY CANNOT ISSUE IRREDEEMABLE PREFERENCE SHARES. PREFERENCE
SHARE CAPITAL IS GENERALLY RAISED AT A LATER STAGE, WHEN THE COMPANY
GET ESTABLISHED. THESE SHARES ARE ISSUED TO SATISFY THE NEED FOR
ADDITIONAL CAPITAL OF THE COMPANY. PREFERENCE SHARE CAPITAL IS SAFE
CAPITAL AS THE RATE OF DIVIDEND AND MARKET VALUES DOES NOT FLUCTUATE.
5) MARKET VALUE :- THE MARKET VALUE OF PREFERENCE SHARES DOES NOT
CHANGE AS THE RATE OF DIVIDEND PAYABLE ON THEM IS FIXED.
6) VOTING RIGHT :- PREFERENCE SHARES DO NOT HAVE NORMAL VOTING RIGHTS.
THEY DO NOT ENJOY RIGHT OF CONTROL ON THE AFFAIRS OF THE COMPANY. THEY
HAVE VOTING RIGHTS ON ANY RESOLUTION OF THE COMPANY DIRECTLY
AFFECTING THEIR INTERESTS.
7) LESS RISK :- THE INVESTORS ARE CAUTIOUS GENERALLY PURCHASE PREFERENCE
SHARES. SAFETY OF CAPITAL AND STEADY RETURNS ON INVESTMENT ARE
ADVANTAGES ATTACHED WITH PREFERENCE SHARES.
7) FACE VALUE :- THE FACE VALUE OF PREFERENCE SHARES IS RELATIVELY
HIGHER THAN EQUITY SHARES. THESE SHARES ARE NORMALLY ISSUED AT A
FACE VALUE OF ₹ 100.
8) RIGHTS OR BONUS ISSUE :- PREFERENCE SHAREHOLDERS ARE NOT ENTITLED
FOR RIGHTS OR BONUS ISSUES.
9) NATURE OF INVESTOR :- PREFERENCE SHARES ATTRACT MODERATE TYPE OF
INVESTOR. INVESTOR WHO ARE CONSERVATIVE, CAUTIOUS, INTERESTED IN
SAFETY OF CAPITAL AND WHO WANT STEADY RETURNS ON INVESTMENT
GENERALLY PURCHASE PREFERENCE SHARES.
 TYPES OF PREFERENCE SHARES
1) CUMULATIVE PREFERENCE SHARES :- CUMULATIVE PREFERENCE SHARES ARE THOSE
TYPE OF SHARES THAT GIVES SHAREHOLDERS THE RIGHT TO ENJOY CUMULATIVE
DIVIDEND PAYOUT BY THE COMPANY EVEN IF THEY ARE NOT MAKING ANY PROFIT.
THESE DIVIDENDS WILL BE COUNTED AS ARREARS IN YEARS WHEN THE COMPANY IS
NOT EARNING PROFIT AND WILL BE PAID ON A CUMULATIVE BASIS THE NEXT YEAR
WHEN THE BUSINESS GENERATES PROFITS.
2) NON - CUMULATIVE PREFERENCE SHARES :- NON - CUMULATIVE PREFERENCE SHARES
DO NOT COLLECT DIVIDENDS IN THE FORM OF ARREARS. IN THE CASE OF THESE TYPES
OF SHARES, THE DIVIDEND PAYOUT TAKES PLACE FROM THE PROFITS MADE BY THE
COMPANY IN THE CURRENT YEAR.
SO IF A COMPANY DOES NOT MAKE ANY PROFIT IN A SINGLE YEAR, THEN THE
SHAREHOLDERS WILL NOT RECEIVE ANY DIVIDENDS FOR THAT YEAR. ALSO, THEY
CANNOT CLAIM DIVIDENDS IN ANY FUTURE PROFIT OR YEAR.
3) PARTICIPATING PREFERENCE SHARES :- PARTICIPATING PREFERENCE SHARES HELP
SHAREHOLDERS DEMAND A PART IN THE COMPANY’S SURPLUS PROFIT AT THE TIME OF
THE COMPANY’S LIQUIDATION AFTER THE DIVIDENDS HAVE BEEN PAID TO OTHER
SHAREHOLDERS.
HOWEVER, THESE SHAREHOLDERS RECEIVE FIXED DIVIDENDS AND GET PART OF THE
SURPLUS PROFIT OF THE COMPANY ALONG WITH EQUITY SHAREHOLDERS.
4) NON-PARTICIPATING PREFERENCE SHARES :- THESE SHARES DO NOT BENEFIT THE
SHAREHOLDERS THE ADDITIONAL OPTION OF EARNING DIVIDENDS FROM THE SURPLUS
PROFITS EARNED BY THE COMPANY, BUT THEY RECEIVE FIXED DIVIDENDS OFFERED BY
THE COMPANY.
5) CONVERTIBLE PREFERENCE SHARES :- CONVERTIBLE PREFERENCE SHARES ARE THOSE
SHARES THAT CAN BE EASILY CONVERTED INTO EQUITY SHARES.
6) NON-CONVERTIBLE PREFERENCE SHARES :- NON-CONVERTIBLE PREFERENCE SHARES
ARE THOSE SHARES THAT CANNOT BE CONVERTED INTO EQUITY SHARES.
7) REDEEMABLE PREFERENCE SHARES :- REDEEMABLE PREFERENCE SHARES ARE
THOSE SHARES THAT CAN BE REPURCHASED OR REDEEMED BY THE ISSUING
COMPANY AT A FIXED RATE AND DATE. THESE TYPES OF SHARES HELP THE
COMPANY BY PROVIDING A CUSHION DURING TIMES OF INFLATION.
8) NON-REDEEMABLE PREFERENCE SHARES :- NON-REDEEMABLE PREFERENCE
SHARES ARE THOSE SHARES THAT CANNOT BE REDEEMED OR REPURCHASED BY
THE ISSUING COMPANY AT A FIXED DATE. NON-REDEEMABLE PREFERENCE SHARES
HELP COMPANIES BY ACTING AS A LIFESAVER DURING TIMES OF INFLATION.
 EXPLAIN DETERMINANTS OF RETAINED
EARNINGS

A PART OF PROFIT RETAINED BY THE COMPANY IN THE FORM OF RESERVE FUND IS

CALLED RETAINED EARNINGS OF THE COMPANY.
1) TOTAL EARNINGS OF COMPANY :- IF THERE IS AN AMPLE PROFIT, A COMPANY
CAN SAVE AND RETAIN SOME PART OF PROFIT. MORE THE TOTAL EARNINGS, A
COMPANY CAN SAVE MORE, ATTITUDE OF TOP MANAGEMENT ALSO
DETERMINES THE AMOUNT OF RETAINED EARNINGS.
2) TAXATION POLICY :- IF THE TAXES ARE LEVIED AT HIGH RATES, A COMPANY
CANNOT SAVE MUCH OF THE PROFITS IN THE FORM OF RESERVES.
3) DIVIDEND POLICY :- DIVIDEND POLICY IS A POLICY OF THE BOARD OF
DIRECTORS IN REGARDS TO DISTRIBUTION OF PROFITS. A CONSERVATIVE
DIVIDEND POLICY IS NEEDED FOR HAVING GOOD ACCUMULATION OF PROFIT.
BUT SUCH POLICY AFFECTS SHAREHOLDERS AS THEY GET DIVIDEND AT A
LOWER RATE.
4) GOVERNMENT CONTROL :- A GOVERNMENT IS A REGULATORY BODY OF
ECONOMIC SYSTEM OF THE COUNTRY. ITS POLICIES, RULES AND REGULATIONS
ENSURE THAT THE COMPANIES WORK AS PER IT’S REGULATIONS. A COMPANY
HAS TO FORMULATE ITS DIVIDEND POLICY IN ACCORDANCE WITH THE RULES
AND REGULATIONS FRAMED BY THE GOVERNMENT.
 DEBENTURES

• A DEBENTURE IS A TYPE OF LONG-TERM BUSINESS DEBT NOT SECURED BY

ANY COLLATERAL. IT IS A FUNDING OPTION FOR COMPANIES WITH SOLID
FINANCES THAT WANT TO AVOID ISSUING SHARES AND DILUTING THEIR EQUITY.
 FEATURES OF DEBENTURES

1) PROMISE :- DEBENTURE IS A PROMISE BY A COMPANY THAT IT OWES SPECIFIED

SUM OF MONEY TO HOLDER OF THE DEBENTURE.
2) FACE VALUE :- THE FACE VALUE OF DEBENTURE NORMALLY CARRIES HIGH
DENOMINATION. IT IS ₹ 100 OR IN MULTIPLES OF ₹ 100.
3) TIME OF REPAYMENT :- DEBENTURE ARE ISSUED WITH THE DUE DATE STATED ON
THE DEBENTURE CERTIFICATE. THE PRINCIPLE AMOUNT OF DEBENTURE IS REPAID
ON MATURITY DATE.
4) PRIORITY OF REPAYMENT :- DEBENTURE HOLDERS HAVE A PRIORITY IN
REPAYMENT OF DEBENTURE CAPITAL OVER THE OTHER CLAIMANTS OF COMPANY.
5) ASSURANCE OF REPAYMENT :- DEBENTURE CONSTITUTES A LONG-TERM DEBT.
THEY CARRY AN ASSURANCE OF REPAYMENT ON DUE DATE.
6) INTEREST :- A FIXED RATE OF INTEREST IS AGREED UPON AND PAID
PERIODICALLY IN CASE OF DEBENTURES. THE PAYMENT OF INTEREST IS A
FIXED LIABILITY OF THE COMPANY. IT MUST BE PAID BY A COMPANY
IRRESPECTIVE OF WHETHER IT MAKES PROFIT OR NOT.
7) PARTIES OF TO DEBENTURES :- Ⅰ. COMPANY : THIS IS ENTITY WHICH
BORROWS MONEY. Ⅱ. TRUSTEES : A COMPANY HAS TO APPOINT DEBENTURES
TRUSTEE IF IT IS OFFERING DEBENTURES TO MORE THAN 500 PEOPLE. . THE
COMPANY MAKES AN AGREEMENT WITH TRUSTEES KNOWN AS DEBENTURES
TRUST DEED.
Ⅲ. DEBENTURE HOLDERS :- THESE ARE THE PARTIES WHO PROVIDE LOAD AND
RECEIVE,
‘DEBENTURE CERTIFICATE’ HOLDERS AS EVIDENCE.
8) AUTHORITY TO ISSUE DEBENTURES :- ACCORDING TO COMPANIES ACT, 2013,
SECTION 179 (3), THE BOARD OF DIRECTORS HAS THE POWER TO ISSUE
DEBENTURES.
10) NO VOTING RIGHT :- ACCORDING TO SECTION 71 (2) OF THE COMPANIES ACT, 2013 NO
COMPANIES SHALL ISSUE ANY DEBENTURE CARRYING ANY VOTING RIGHT.
DEBENTURE HOLDERS HAVE NO RIGHT TO VOTE.
11) SECURITY :- DEBENTURE ARE GENERALLY SECURED BY FIXED OR FLOATING CHARGE
ON ASSETS OF THE COMPANY. IF A COMPANY IS NOT IN A POSITION TO MAKE PAYMENT
OF INTEREST OR REPAYMENT OF CAPITAL, THE DEBENTURE HOLDERS CAN SELL OF
CHARGED PROPERTY OF THE COMPANY AND RECOVER THEIR MONEY.
12) ISSUERS :- DEBENTURES CAN BE ISSUED BY BOTH PRIVATE COMPANY AND PUBLIC
LIMITED COMPANY.
13) LISTING :- DEBENTURES MUST BE WITH AT LEAST ONE RECOGNIZED STOCK
EXCHANGE.
14) TRANSFERABILITY :- DEBENTURES CAN BE EASILY TRANSFERRED THROUGH THE
INSTRUMENT OF TRANSFER.
 Type of debentures

On the basis of On the basis of On the basis of On the basis of

security transfer repayment conversion

1. Secured 1. Registered 1. Redeemable

debentures 1. Convertible
debentures debentures
2. Unsecured debentures
2. Bearer 2. Irredeemable
debentures 2. Non-convertible
debentures debentures
 TYPES OF DEBENTURES
1) SECURED DEBENTURES :- The debentures can be secured. The property of a company may be charged as
security for loan. The security may be the assets in general (floating charge). The debentures are secured
through ‘Trust Deed’

2) UNSECURED DEBENTURES :- Unsecured debentures have no security. The issue of unsecured debentures
is permitted by the companied ACT, 2013.

3) REGISTERED DEBENTURES :- Registered debentures are those debentures on which the names of holders
are recorded. A company maintain ‘Register of debenture holders’ in which the name, address and particulars of
holdings of debentures holders are entered. The transfer of registered debentures requires the execution of
regular transfer deed.

4) BEARER DEBENTURES :- The names of holders are not recorded on the bearer debentures. Their names do
not appear in the ‘Register of Debentures’. Such debentures are transferable by mere delivery. The payment of
interest is made by means of coupons attached to debenture certificate.
5) REDEEMABLE DEBENTURES :- The redeemable are payable at the end of some fixed period, as
mentioned on the debenture on the debenture certificate. The repayment can be made at fixed date at the end
of specific period or by instalment during the life time of the company the provision of repayment is normally
made in ‘Trust Deed’.

6) IRREDEEMABLE DEBENTURES :- Irredeemable debentures are not repayable during life time of the
company. They are repayable only after the liquidation of the company, or when there is breach of any
condition or when some contingency arises.

7) CONVERTIBLE DEBENTURES :- Convertible debentures give right to holder to convert them into equity
shares after a specific period of time. Such right is mentioned on the debenture certificate. The issue of
convertible debentures must be approved by special resolution in general. Meeting before they are issued to
public. These debentures are advantageous for the holder. Due to this conversion right, convertible debenture
holders may benefit from acquisition of equity shares at a rate lower than market value.

8) NON-CONVERTIBLE DEBENTURES :- Non-convertible debentures are not convertible into equity shares
on maturity. These debentures are redeemed on maturity date. These debentures suffer from the disadvantage
that there is no appreciation in value.
 WHAT IS AMERICAN DEPOSITORY RECEIPT
(ADR) AND GLOBAL DEPOSITORY RECEIPTS
(GDR) ?
IN INDIAN, THE SHARES OF A PUBLIC COMPANY ARE LISTED AND
TRADED ON VARIOUS STOCK EXCHANGE SUCH AS BOMBAY STOCK
EXCHANGE (BSE) AND NATIONAL STOCK EXCHANGE (NSE).
WITH THE ADOPTION OF FREE ECONOMIC POLICY AND
GLOBALIZATION, SOME OF THE INDIAN COMPANIES’ SHARES ARE
ALSO LISTED AND TRADED ON FOREIGN STOCK EXCHANGE LIKE
NEW YORK STOCK EXCHANGE (NYSE) OR NATIONAL ASSOCIATION OF
SECURITIES DEALERS AUTOMATED QU0TATIONS (NASDAQ). TO LIST
SHARES ON THESE STOCK EXCHANGES, A COMPANY HAS TO COMPLY
THE POLICIES OF THESE STOCK EXCHANGE ARE DIFFERENT THAN THE POLICIES OF
INDIAN STOCK EXCHANGE. THEREFORE, THOSE INDIAN COMPANIES WHICH CANNOT LIST
THEIR SHARES DIRECTLY ON FOREIGN STOCK EXCHANGE; GET LISTED INDIRECTLY
USING AMERICAN DEPOSITORY RECEIPT (ADR) AND GLOBAL DEPOSITORY RECEIPT(GDR).
ADR AND GDR ARE DOLLAR/EURO DENOMINATED INSTRUMENT TRADED IN USA AND
EURO STOCK EXCHANGE.
INDIAN COMPANY ISSUES SHARES TO AN INTERMEDIARY CALLED ‘DEPOSITORY BANK’.
BANK OF NEW YORK, CITIGROUP ETC. ACT AS FOREIGN DEPOSITORY BANK. THIS
DEPOSITORY BANK. THIS DEPOSITORY BANK ISSUES ADR AND GDR TO INVESTORS
AGAINST THESE SHARES. THE ADR/ GDR REPRESENT FIXED NUMBER OF SHARES.
THESE ADR/ GDR ARE SOLD TO PEOPLE IN FOREIGN COUNTRY. THE ADR/ GDR ARE
TRADED LIKE REGULAR SHARES. THEY ARE LISTED ON STOCK EXCHANGE. THEIR PRICES
FLUCTUATE DEPENDING ON DEMAND AND SUPPLY.
BOTH ADR AND GDR ARE DEPOSITORY RECEIPTS, NUT ONLY DIFFERENCE IS THE LOCATION
WHERE THEY ARE TRADED. IF THE DEPOSITORY RECEIPT IS TRADED IS USA, IT IS CALLED
AMERICAN DEPOSITORY RECEIPT (ADR) AND IF IT IS TRADED IN A COUNTRY OTHER THAN USA,
IT IS CALLED GLOBAL DEPOSITORY RECEIPT (GDR).
NON-RESIDENT INDIANS AND FOREIGN NATIONALS CAN INVEST THEIR MONEY IN INDIA BY
PURCHASING ADR AND GDR. THEY CAN BUY ADR/ GDR USING THEIR REGULAR EQUITY
TRADING ACCOUNT.
THE COMPANY PAYS DIVIDEND IN HOME CURRENCY TO THE DEPOSITORY BANK AND THE
DEPOSITORY BANK CONVERTS IT INTO THE CURRENCY OF INVESTOR AND PAYS DIVIDEND.
THE EXCHANGES ON WHICH GDR IS TRADED ARE AS FOLLOWS: Ⅰ. LONDON STOCK EXCHANGE.
Ⅱ. LUXEMBOURG STOCK EXCHANGE
II. NASDAQ DUBAI
IV. SINGAPORE STOCK EXCHANGE
V. HONG KONG STOCK EXCHANGE
 ANSWER TO THE BELOW QUESTION
1. …………. IS RELATED TO MONEY AND MONEY MANAGEMENT.
(A) PRODUCTION (B) MARKETING (C) FINANCE
2. ………….. REFERS TO THE EXCESS OF CURRENT ASSETS OVER CURRENT
LIABILITIES.
(A) WORKING CAPITAL (B) ISSUED CAPITAL (C) SUBSCRIBED CAPITAL
3. …………. IS A SMALLEST UNIT IN THE TOTAL SHARE CAPITAL OF THE COMPANY.
(A) DEBENTURE (B) BONDS (C) SHARE
4. …………. PARTICIPATE IN THE MANAGEMENT OF THEIR COMPANY.
(A) PREFERENCE SHAREHOLDERS (B) DEPOSITORS (C) EQUITY SHAREHOLDERS
5. DEBENTURE HOLDERS ARE …………. OF THE COMPANY
(A) CREDITORS (B) OWNERS (C) SUPPLIERS
 CREDIT
DHAIRYA NATHANI
USHANK BOKFODE
ROHIT GUPTA
VEDANT DESAI
DARSHAN SONDAKAR
AKANSH PATIL
PAWAN BABRE
SIDDHARTH PHANSE
NIRMIT CHAWAN
CHIRAG SUTAR
MAYUR TAK
DHRUV MALI
YASH JADHAV