Owner’s Fund

1. Sources of Business Finance Owner’s Fund Owner’s funds means funds that are provided by the owners of an enterprise, which may be a sole trader or partners or shareholders of a company. Apart from capital, it also includes profits reinvested in the business. The owner’s capital remains invested in the business for a longer duration and is not required to be refunded during the life period of the business. Owners Fund Equity Shares Retained Earnings Preference Shares IDR,ADR&GDR

2. Owner’s Fund Share Capital Share capital is the major source of finance for a company form of business organization. It is the amount collected from the public through the issue of different units of shares. The shareholder will become one of the owners of the company. Share Capital Share A Share B Share C Share D

3. Owner’s Fund Share Capital Preference Shares Equity Shares Share Capital

4. Owner’s Fund Equity Shares Equity shares are the ordinary share capital of a business. The Investors of the Equity shares are the owners of the company. They are the real risk takers of the business. Equity shares are considered to be long term internal source of business finance. • Equity share holders are considered to be the owners of the business • Remuneration/Dividend to the Equity share holders are not fixed • High risk takers, but better rate of return in case of prosperity • Enjoys Voting right and participation in the management • Gets the dividend only after meeting the claims of other parties including creditors and govt.

5. Owner’s Fund Advantages of Equity Shares No burden on the company Equity shares No charge on assets Permanent capital Higher returns Control

6. Owner’s Fund Advantages of Equity Shares No burden on the company Equity shares No charge on assets Permanent capital Higher returns Control Equity capital is the permanent capital and is repaid only on the liquidation of the company. No refund of capital up to liquidation

7. Owner’s Fund Advantages of Equity Shares No burden on the company Equity shares No charge on assets Permanent capital Higher returns Control For raising the fund through the issue of equity shares the company does not need to mortgage its property to its equity share holders No mortgage of company property

8. Owner’s Fund Advantages of Equity Shares No burden on the company Equity shares No charge on assets Permanent capital Higher returns Control The rate of return on equity shares is made on the basis of the profitability of the business. Hence when the business is having Better profit, that will be distributed among the equity share holders on the basis of the number of shares they held. Besides if there is any surplus in the company, the same will also be distributed to equity share holders.

9. Owner’s Fund Advantages of Equity Shares No burden on the company Equity shares No charge on assets Permanent capital Higher returns Control No Profit, No Dividend Payment of dividend to the equity will be on the basis of the companies profitability. Hence it is not mandatory to issue dividend to equity share holders at all times if there is no profit to the company. Therefore, the dividend on equity shares will not be a burden.

10. Owner’s Fund Advantages of Equity Shares No burden on the company Equity shares No charge on assets Permanent capital Higher returns Control Voting Right Equity share holders are having the right to participate in the meetings of the company and to vote. This enables the equity share holders to have a democratic control over management of the company.

11. Owner’s Fund Preference Shares Preference shares are those shares which having the preferential right to accept the dividend at the time of declaration and for the repayment of capital on winding up of the business. They have no special rights and privileges in the company. • Capital raised through the issue of preference shares • Preferential right to receive the dividend and for repayment of capital. • Fixed rate of return • No voting right and special privileges • Less risk and less rate of return as compared to equity share holders.

12. Owner’s Fund Advantages of Preference Shares No Charge against property Absolute Control to Equity share holders Preferential Rights Preference shares Steady Income Low Risk Preference shares

13. Owner’s Fund Advantages of Preference Shares Absolute Control to Equity share holders No charge against property Preferential Rights Preference shares Steady Income Low Risk Preference shares provide reasonably steady income in the form of fixed rate of return and safety of investment

14. Owner’s Fund Advantages of Preference Shares Absolute Control to Equity share holders No charge against property Preferential Rights Preference shares Steady Income Low Risk Preference shares are useful for those investors who want fixed rate of return with comparatively low risk as it provides fixed return. Fixed and Stable Return

15. Owner’s Fund Advantages of Preference Shares Absolute Control to Equity share holders No charge against property Preferential Rights Preference shares Steady Income Low Risk It does not affect the control of equity shareholders over the management as preference shareholders don’t have voting Rights. No Voting Right

16. Owner’s Fund Advantages of Preference Shares Absolute Control to Equity share holders No charge against property Preferential Rights Preference shares Steady Income Low Risk Fixed Dividend Priority in capital refund Preference shareholders have a Preferential right of repayment over equity shareholders in the event of liquidation of a company and for getting the dividend at the time of declaration.

17. Owner’s Fund Advantages of Preference Shares Preferential Rights No Charge against Property Absolute Control to Equity share holders Preference shares Steady Income Low Risk No mortgage of company property Preference capital does not create any sort of charge against the assets of a company. These shares can be repaid after a specified period of time.

18. Owner’s Fund Global Depository Receipt(GDR) The local currency shares of a company are delivered to the depository bank. The depository bank issues depository receipts against these shares. These receipts are called GDR. GDR is an instrument issued abroad by an Indian company to raise funds in some foreign currency and is listed and traded on a foreign stock exchange. Negotiable instrument issued by an Indian Company abroad • GDR is a negotiable instrument and can be traded freely like any other security. • A holder of GDR can at any time convert it into the number of shares it represents. • The holders of GDRs do not carry any voting rights

19. Owner’s Fund American Depository Receipt(ADR) The depository receipts issued by a company in the USA are known as American Depository Receipts. ADRs are bought and sold in American markets like regular stocks. Depository receipts by a U S Company • It is similar to a GDR except that it can be issued only to American citizens. • ADR can be listed and traded on a stock exchange of USA • The holders of GDRs do not carry any voting rights

20. Owner’s Fund Retained Earnings A company generally does not distribute all its earnings amongst the shareholders as dividends. A portion of the net earnings may be retained in the business for use in the future. This is known as retained earnings. • It is a source of internal financing or self financing or ‘ploughing back of profits’. • Retained earnings is a permanent source of funds available to an organisation R E = Net Profit – Dividend • It does not involve any explicit cost in the form of interest, dividend or floatation cost • As the funds are generated internally, there is a greater degree of operational freedom and flexibility