Stock

STOCK AND STOCK SECURITY FINANCE

If the stock finance is mobilized through issue of securities such as shares and debenture, it is

called as security finance. It is also called as corporate securities. This type of finance

plays a major role in the field of deciding the capital structure of the company.

Characters of Security Finance

Security finance consists of the following important characters:

1. Long-term sources of finance.

2. It is also called as corporate securities.

3. Security finance includes both shares and debentures.

4. It plays a major role in deciding the capital structure of the company.

5. Repayment of finance is very limited.

6. It is a major part of the company’s total capitalization.

Types of Security Finance

Security finance may be divided into two major types:

1. Ownership securities or capital stock.

2. Creditorship securities or debt capital.

Ownership Securities

The ownership securities also called as capital stock, is commonly called as shares. Shares

are the most Universal method of raising finance for the business concern. Ownership

capital consists of the following types of securities.
EQUITY SHARES

Equity Shares also known as ordinary shares, which means, other than preference shares.

Equity shareholders are the real owners of the company. They have a control over the

management of the company. Equity shareholders are eligible to get dividend if the company

earns profit. Equity share capital cannot be redeemed during the lifetime of the company.

The liability of the equity shareholders is the value of unpaid value of shares.

Features of Equity Shares

Equity shares consist of the following important features:

1. Maturity of the shares: Equity shares have permanent nature of capital, which

has no maturity period. It cannot be redeemed during the lifetime of the company.

Sources of Financing 29

2. Residual claim on income: Equity shareholders have the right to get income

left after paying fixed rate of dividend to preference shareholder. The earnings

or the income available to the shareholders is equal to the profit after tax minus

preference dividend.

3. Residual claims on assets: If the company wound up, the ordinary or equity

shareholders have the right to get the claims on assets. These rights are only

available to the equity shareholders.

4. Right to control: Equity shareholders are the real owners of the company.

Hence, they have power to control the management of the company and they

have power to take any decision regarding the business operation.

5. Voting rights: Equity shareholders have voting rights in the meeting of the

company with the help of voting right power; they can change or remove any

decision of the business concern. Equity shareholders only have voting rights

in the company meeting and also they can nominate proxy to participate and vote

in the meeting instead of the shareholder.

6. Pre-emptive right: Equity shareholder pre-emptive rights. The pre-emptive right

is the legal right of the existing shareholders. It is attested by the company in the

first opportunity to purchase additional equity shares in proportion to their

current holding capacity.

7. Limited liability: Equity shareholders are having only limited liability to the

value of shares they have purchased. If the shareholders are having fully paid

up shares, they have no liability. For example: If the shareholder purchased 100

shares with the face value of Rs. 10 each. He paid only Rs. 900. His liability is

only Rs. 100.

Leave a Reply

CONTACTS
archive

46c82609c69c99fad8867d735eb49e63dfb48e78