SHARE CAPITAL
Main Sources of Corporate Finance
There are four main
sources of obtaining or raising funds to finance a company.
Share
capital-members of the public that subscribe to the shares of the company are
called shareholders. They are real owners of the company and are called
"equity-holders" of the company.
Debentures
A part of the
finances of the company may be in the form of debenture capital. A debenture is
really loan capital and is secured on the assets of the company. Debentures
have to be paid back according to the terms and conditions of their issue.
Accumulated profits in the form of reserves may constitute a considerable part
of the company's finances after a number of years of successful business
operations.
Loans from banks
and other financial or commercial institutions.
Classification of Share Capital
The share capital of a
company is usually classifying as under:
Authorized, Registered or Nominal Capital
This is the amount
of capital with which the company is formed and incorporated. It is the full
amount of share capital, which is shown in the memorandum of association with
which the company has been registered. This is also the maximum amount of
capital, which a company is authorizing to raise, hence the term authorized
capital is used.
Issued Capital
This capital
represents the number of shares that have been issued to the public for
subscription for cash. It includes shares allotted to venders as fully or
partly paid for consideration other than cash.
Subscribed Capital
ii.
It is that part of
the issued capital which is subscribed and subsequently allotted in shares to
the public or to the vendors as fully or partly paid.
Called-up Capital
This is the amount
of money that the public and vendors are called upon to pay out of the
subscribed capital. A company does not necessarily need the full amount of the
subscribed capital immediately and therefore, sometimes calls up only a part
of the subscription. For example, for each share of Rs. 10- the company may
make the first call of Rs. 4/- in the first instance and call the balance later as
it deems fit. But this practice has now been abolished in Pakistan.
Paid-up Capital
It denotes a portion of the called-up capital that has been actually paid up by the
shareholders.
Reserve Capital
It represents that amount of subscribed capital which has not been called-up and which the company by special resolution has decided, shall not be capable of being called-up, except in case and for the purpose, of winding-up.
Watered Capital
It is that portion of
the share capital, which is not represented by any tangible or realizable
assets, e.g., the amount paid for the goodwill of an old going concern. The term
"Watered Capital' is also used to denote share capital issued as a bonus
shares out of accumulated profits as it causes a reduction.
Rights of Shareholders
• The ownership of
stock in a company usually carries the following basic rights:
• To vote for
Directors, and thereby to be represented in the management of the business.
• To share profits
by receiving dividends declared by the board of directors and subsequently
approved in the annual general meeting. Shareholders in a company may not make
• withdrawals of
company assets, as may an owner of a un corporate business. However, the
earnings of a profitable company may be distributed to shareholders in the form
of cash dividends. The payment of a dividend always requires formal
authorization by the board of directors. To share in the distribution of assets
if the company is liquidated. When a company legally ends its existence, the
creditors of the company must first be paid in full; any remaining assets are
divided among shareholders in proportion to the number of shares owned.
• To subscribe for
additional shares in the event that the company decides to increase the amount
of stock outstanding. This preemptive right entitles shareholders to maintain
their percentages of ownership in the company by subscribing, in proportion to
their present shareholdings. to any additional shares issued. Companies organized
in certain countries do not grant. Preemptive rights to their shareholders. In
other cases, shareholders sometimes agree to waive their preemptive rights in
order to grant more
• flexibility to
management in issuing stock.
• Shareholders
meetings are usually held once or twice a year. Each share of stock is entitled
to one vote. In large companies, relatively few persons usually attend these
annual meetings, often by less than I% of the shareholders. Prior to the
meeting, the management groups will request the shareholders who don't plan to
attend in person to send in proxy statements assigning their votes to the
existing management. Through the use of this proxy
No comments:
Post a Comment