Fm chapter 3

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•EQUITY SHARE CAPITAL•PREFERENCE SHARE CAPITAL•RETAINED EARNING

SOURCES OF FINANCESOURCES OF FINANCE

SHORT TERM LONG TERMTRADE CREDITSCREDIT FROM SUPPLIERSADVANCE FROM DEALERS

PURCHASE OF FIXED ASSETSFUNDING EXPANSIONSDIVERSIFICATIONS

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OWNED FUNDSOWNED FUNDS BORROWED FUNDSBORROWED FUNDS

SHARESSHARES RETAINED EARNING

LONG TERM FINANCE

SHARESSHARES• A SHARE HAS BEEN DEFINED BY THE VIETNAM’S BUSINESS LAW

• SHARE MEANS SHARE IN THE SHARE CAPITAL OF THE COMPANY & INCLUDES STOCK EXCEPT WHERE A DISTINCTION BETWEEN STOCK & SHARE IS EXPRESSED OR IMPLIED.

• THE LIABILITY OF THE SHAREHOLDER IS LIMITED TO THE EXTENT OF THE FACE VALUE OF THE SHARES.

A SHAREHOLDER- MEMBER OF THE COMPANY

PRIVATE COMPANYPRIVATE COMPANY PUBLIC COMPANYPUBLIC COMPANY

MINIMUMMINIMUM

MAXIMUMMAXIMUM

22

5050

77

UNLIMITEDUNLIMITED

NUMBERS OF MEMBERS (MEMBERSHIP ) IN CASE OF A COMPANYNUMBERS OF MEMBERS (MEMBERSHIP ) IN CASE OF A COMPANY

AUTHORISED CAPITAL

ISSUED CAPITAL UNISSUED CAPITAL

SUBSCRIBED CAPITAL UNSUBSCRIBED CAPITAL

CALLED UP CAPITAL UNCALLED CAPITAL RESERVE CAPITAL

PAID UP CAPITAL CALLS IN ARREARS (UNPAID CAPITAL)

SHARES

EQUITY SHARES PREFERENCE SHARES

EQUITY SHARES

•RISK BEARING CAPITAL

•NO FIXED RATE OF DIVIDEND

•RIGHT TO VOTE

•OWNERS OF THE COMPANY

RIGHTS OF EQUITY SHAREHOLDERS•THE RIGHT TO RESIDUAL INCOME

•RIGHT OF CONTROL

•PRE-EMPTIVE RIGHT

•RESIDUAL CLAIMANTS OVER ASSETS

ADVANTAGES OF EQUITY SHARES

TO THE ISSUING COMPANY-

•PERMANENT SOURCE OF CAPITAL

•NO FIX DIVIDEND

•CREDITWORTHYNESS OF THE COMPANY

DISADVANTAGES OF THE EQUITY SHARES

TO THE ISSUING COMPANY-

•NOT A TAX-DEDUCTIBLE EXPENSE

•FLOATATION COST IS HIGHER

•OVER CAPITALISATION

•DILUTION OF CONTROL

ADVANTAGES OF EQUITY SHARES

TO THE SHAREHOLERS-

•HIGHLY PROFITABLE SHRES

•OWNERS OF THE COMPANY

•LIMITED LIABILITY

DISADVANTAGES OF EQUITY SHARES

TO THE SHAREHOLERS-

•RISK CAPITAL

•CONTROL OVER THE MANAGEMENT

•FLUCTUATION

PREFERENCE SHARES•PREFERENCE SHARES ARE THOSE SHARES WHICH ENJOY PRIORITIES IN THE PAYMENT OF DIVIDEND AS WELL AS IN THE REPAYMENT OF THE CAPITAL

•PREFERENCE SHAREHOLDERS ARE ENTITLED TO RECEIVE A FIXED RATE OF DIVIDEND BEFORE THE DIVIDEND IS PAID TO THE EQUITY SHARESHOLDERS.

TYPES OF PERFERENCE SHARES

1.PARTICIPATING AND NON PARTICIPATING SHARES

2.REDEEMABLE AND IRREDEEMABLE SHARES

3.CUMULATIVE AND NON CUMULATIVE SHARES

4.CONVERTIBLE AND NON CONVERTIBLE SHARES

FEATURES OF PREFERENCE SHARES-•HYBRID SECURITY

•PREFERENCIAL RIGHTS

•PREFERENCIAL RIGHT ON FIXED DIVIDENDS.

•DEMAND UNPAID ARREARS

• VOTING RIGHTS

•CONVERSION OF SHARES

•RIGHT TO SHARE SURPLUS PROFITS

ADVANTAGES OF OWNED FUNDS•INDICATES THE OWNERS STAKE AND INTEREST•CUSHION FOR RAISING BORROWED FUNDS•PROPOTION•NO OBLIGATION•SAFETY TO THE LENDERS•RIGHT TO ACTIVE PARTICIPATION

RETAINED EARNINGSINSTEAD OF DISRTIBUTING THE ENTIRE PROFITS TO THE SHAREHOLERS, COMPANY RETAINS SOME PROFITS FOR THE PURPOSE OF-

1.ACCUMULATIONS OF EARNINGS2.INVESTMENT IN FIXED ASSETS3.TO MEET WORKING CAPITAL NEEDS

MERITS OF PLOUGHING BACK OF PROFITS

TO THE COMPANY-•ECONOMICAL•EFFICIENCY AND PRODUCTIVITY•CONFIDENCE OF SHAREHOLDERS•ENHANCES CREDITWORTHYNESS•LESS FINANCIAL RISK•REPAYMENTS OF DEBENTURES AND TERM LOANS

•REDUCES THE RELIANCE•HELPS EXPANSION AND DIVERSIFICATION•HELPS AUTOMATION AND MODERNISATION•USED TO MEET WORKING CAPITAL NEEDS•FOLLOWS A STABLE DIVIDEND POLICY•FREEDOM TO TAKE THEIR OWN DECISIONS

TO THE SHAREHOLDERS

•APPRECIATION IN SHARE VALUES•BONUS SHARES•REGULAR DIVIDENDS•SECURITY VALUE

TO THE SOCIETY

•INCREASES CAPITAL FORMATION•HELPS SPEEDY DEVELOPMENT•BENEFITS TO THE CONSUMERS•SOCIAL WELFARE ACTIVITIES

DEMERITS OF PLOGHING BACK OF PROFITS-

•DANGER OF MANIPULATION•CHANCES OF OVER CAPITALISATION•IMPROPER USE OF RETAIN EARNINGS•NO SHARE OF DIVIDEND•LEAD TO EXCESSIVE SPECULATIONS•LEAD TO MORE DEMENDS FROM EMPLOYEES•CONCENTRATION OF ECONOMIC POWER IN FEW HANDS

DETERMINANTS OF INTERNAL FINANCING

•TOTAL EARNING OF THE ENTERPRISE•TAXATION POLICY OF THE GOVERNMENT•DIVIDEND POLICY•GOVERNMENT ATITUDES AND CONTROL•OTHER FACTORS

MERITS OF INTERNAL FINANCING

ADVANTAGES RO THE COMPANY-

•BEST AND CHEAPEST SOURCE OF FINANCE•STABLE DIVIDEND POLICY•INCREASE IN MORALE OF MANAGEMENT•SAFETY FROM TRADE CYCLES

ADVANTAGES TO THE SHAREHOLDER•INCRAESE IN THE VALUE OF THE SHARE•INCREASE IN EQUITY•INCREASE IN THE COLLATERAL VALUE OF SHARES

ADVANTAGES TO THE SOCIETY•CAPITAL FORMATION•INCRAESE IN SOCIAL WELFARE

DEMERITS OF INTERNAL FINANCING

•DANGER OF MONOPOLY•FEAR OF OVER-CAPITALISATION•LOSS OF SHAREHOLDERS