The sources of long-term finance could be classified into the following categories:
1 Equity shares
2 Preference shares
3 Debentures
4 Bonds
5 Warrants
The combination of the sources of long-term finance is known as capital structure. From Sources of Long Term Finance the above classification, we will discuss one after the another.
Shares and Stock are synonymous in usage. Shares are the expression of smaller units
of Share capital of the organization. The raising of equity share capital from the investors
in various segments viz Application money, First call money and Subsequent calls money
are collected subject to the capital clause of the Memorandum of Association of the
After the issue, the share certificates are issued which normally depicts the expression
of right of shares.
Right of Equity Shares:
Sec. 85(2) of the Companies Act, 1956 expresses the right of the equity shareholders
who hold the equity shares
To vote
To control the management
To share the profits
To claim on the residual portion during the winding up
To exercise pre-emptive
To apply the court
To receive the copy of the statutory report, copy of the annual accounts
To apply the central government for AGM - failure on the part of the companyl To apply company law board for Extraordinary general meeting.
Sweat Security
It is one kind of Equity share, which was introduced in the Ordinance 1998,
facilitating the companies to acquire the technical know-how, intellectual property
through the issue of equity shares.
The equity shares which are issued at discount to employees and directors and
consideration other than cash for Technical know-how, intellectual property are
known as sweat security.
Normally the sweat security is issued by the companies in two different categories:
Sweat security which is issued at preferential pricing more specifically for employees
Sweat security which is issued at face value, that may be either at par or above par
Non Voting Shares
These type of equity shares never carry any voting rights. These type of shares are also eligible to enjoy the bonus issue and exclusive listing for the holding of the shares. When Two year Dividends are continuously missing, the nature of the non voting shares will automatically become as Voting shares. The Non voting shares are to be declared 20% dividend more than the ordinary dividend. The issue size of the Non voting shares should not exceed the maximum limit of the voting stock i.e. 25%.
Bonus Issue
This type of issue is merely considered as book entry in between the two different
sources of long term finance viz Free Reserves and Equity Share capital. This type of
issue is normally restricted to the companies which are having the partly paid equity
shares. The bonus issue is permitted by making the partly paid up shares into fully paid
shares. The bonus issue is normally decided in the board meeting

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