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SOURCES OF LONG TERM FINANCING

TYPES OF BUSINESS

SOLE PROPREITOR

PARTNERSHIP

COMPANY
PRIVATE LIMITED PUBLIC LIMITED

TYPES OF FINANCE
SHARES ORDINARY EQUITY DEBT TERM LOANS, DEBENTURES & BONDS

HYBRID FINANCE WARRANTS, CONVERTIBLES & OPTIONS ALTERNATIVE FINANCING LIKE LEASE, HIRE PURCHASE, VENTURE CAPITAL

SHARES

SHARES
Types Authorised Share Capital Authorised share capital is the number of ordinary shares capital that a firm can raise without further shareholder approval. Issued Capital The portion of the authorised capital offered by the company to the investors is the issued capital. Subscribed Share Capital Subscribed share capital is the number of share (capital) outstanding. Paid-up Capital The actual amount paid by the shareholders is the paid-up capital.

Par (face) Value Par (face) value is a value arbitrarily placed on the shares.

FEATURES OF SHARES
Residual claim to income

Residual claim on assets


Right to control Pre-emptive rights Limited liability.

ISSUE OF SHARES
IPO

FPO
RIGHTS ISSUE PREFERENCE SHARES QIB

IMPORTANT POINTS IN ISSUE OF SHARES


BOOKBUILDING

SEBI
MERCHANT BANKERS STOCK EXCHANGES

DEBT

FEATURES OF TERM LOANS


MATURITY NEGOTIATED

SECURITY / COLLATERAL
COVENANTS

TYPES OF COVENANTS
ASSET RELATED LIBILITY RELATED CASH FLOW RELATED CONTROL RELATED

NEGATIVE

POSITIVE

PROVIDING INFORMATION MAINTAINENCE SINKING FUND

FEATURES OF BOND / DEBENTURE


Attributes As a long-term source of borrowing, debentures have some contrasting features compared to equities .

Trust Indenture When a debenture is sold to investing public, a trustee is appointed through an indenture/trust deed.
Trust (bond) indenture is a complex and lengthy legal document stating the conditions under which a bond has been issued. Trustee is a bank/financial institution/insurance company/ firm of attorneys that acts as the third party to a bond/debenture indenture to ensure that the issue does not default on its contractual responsibility to the bond/ debentureholders. Interest The debentures carry a fixed (coupon) rate of interest, the payment of which is legally binding/enforceable. The debenture interest is tax-deductible and is payable annually/semiannually/quarterly.

IMPORTANT POINTS ABOUT BONDS / DEBENTURE


MATURITY
SINKING FUND CALL / PUT OPTION SECURITY CONVERTIBILITY CREDIT RATING CLAIM ON INCOME AND ASSETS

INNOVATIVE DEBT INSTRUMENTS


ZERO COUPON BONDS DEEP DISCOUNT BONDS SECURED PREMIUM NOTES FLOATING RATE BOND

CALL / PUT BONDS


FCCB

HYBRID FINANCING INSTRUMENTS

TYPES OF HYBRID INSTRUMENTS


PREFERENCE SHARES CONVERTIBLE DEBENTURES AND BONDS WARRANTS

ALTERNATIVE FINANCING

TYPES OF ALTERNATIVE FINANCING


LEASE HIRE PURCHASE

VENTURE CAPITAL
ANGEL INVESTOR PRIVATE EQUITY

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