Equity SHARES & DEBENTURE

PREPARED BY:Sumit Kumar 1135 Click to edit Master subtitle style Yash Deliwala 1141 Sourbha Deshpande 1128 Awasf Khan 1116

Kohinoor Business School & CMR, Khandala 11 8/19/12

Need for long term Finance

Long term vs. short term(working capital) funds requirements For modernization, expansion, diversification; huge quantities reqd., irreversible decision Asset-liability mismatch, interest rate risk, liquidity risk.

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EQUITY SHARES
Equity Shares are issued and are traded everyday in the stock market. Equity share holders only get dividend after preference shareholders & debenture holders. The returns on the equity shares are not at all fixed. It depends on the amount of profits made by the company. The board of directors decides on how much of the dividends will be given to equity share holders. Share holders can accept to it or reject the offer during the annual general meeting. Equity shareholders have the right to vote on any resolution placed before the company.
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TYPES OF EQUITY SHARES

The Equity share is a common name, some of the types of equity shares are: Blue Chip Shares Income Shares Growth shares Cyclical Shares Defensive shares Speculative shares

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ADVANTAGES
High Return Easily Transferable. These can be easily liquidated. Right to vote Right to choose the board of directors. Equity share holders have the right to oppose any of the decisions taken by the board of directors. ( for e.g. This is what happened when Mr. Ramalinga raju tried to buy Maytas company)

DISADVANTAGES
High Risk In worst cases less privilege given to equity share holders.
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ISSUE OF SHARES
Prospect us Applicati on Allotmen t

Detail of a Company & Shares in Prospectus. 90 % application is necessary

If excess application received then company issue shares by pro rata basis

full amount can be called up by company at the time of application or it can be paid up in installments also (calls)

Repayme nt/ dividend

share of the company may be issued in any of the following three ways: 1. At par; 2. At premium; and 3. At discount.

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CONT.

Issue of shares for consideration other than cash (For example: issue of shares to vendors, to promoters etc.) Forfeiture of shares Buy Back of Shares Right Shares Redemption of preference shares/ Debenture

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DEBENTURES

Instrument of debt executed by the company certificate of loan pays pre specified percentage of

Company

interest
Part

of the company's capital structure

Debentures

are generally secured against the companys assets debentures can be either fully or partly converted into Shares debentures may carry a lower
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Convertible Convertible

TYPES OF DEBENTURES

Security Point of View i. Secured Debentures ii. Unsecured Debentures Tenure Point of View i. Redeemable Debentures ii. Perpetual Debentures Mode of Redemption Point of View i. Convertible Debentures ii. Non-Convertible Debentures Coupon Rate Point of View

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ADVANTAGES
1. Control of company is not surrendered to debenture holders because they do not have any voting rights. 2. Interest on debenture is an allowable expenditure under income tax act, hence incidence of tax on the company is decreased. 3. Debenture can be redeemed when company has surplus funds.

DISADVANTAGES
1. Cost of raising capital through debentures is high of high stamps duty. 2. Common people cannot buy debenture as they are of high denominations. 3. They are not meant for companies earning greater than the rate of interest which they are paying on the debentures.
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CONCLUSION
No doubt equity shares have both advantages and disadvantages but the fact is that equity shares are the most sought financial instruments for both investment or for speculation.

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