1. Equity Shares: Equity shares are the most important source of raising long term capital by a company. They represent the ownership of a company and therefore, the capital raised by issue of these shares is called owner’s funds. These shareholders do not get a fixed dividend. They get according to the earnings of the company. They receive what is left after all other claims on the company’s income and assets have been settled. They enjoy the reward and also bear the risk of ownership. They have voting rights. Using their voting rights, they get participation in management of the company.
2. Preference Shares: Preference shareholders are called so because they enjoy some preferential rights over equity shares. They get dividend at a fixed rate and dividend is given on these shares before any dividend on equity shares. When company winds up, preference shares are paid before equity shares. Preference shares also have a right to participate in excess profits left after payment being made to equity shares. They also have a right to participate in the premium at the time of redemption. In lieu of these preferential rights, their voting rights are taken i.e. they are not eligible for voting. Preference shares have some characteristics of equity shares as well as debentures. They are safer investment with stable return from investor’s point of view and free from control from owner’s point of view.

Global Depository Receipts (GDR) are the depository receipts denominated in US dollars issued by depository bank to which the local currency shares of a company are delivered. GDR is a negotiable instrument and can be traded freely like any other security. In the Indian context, a 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.

American Depository Receipts (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. ADR is similar to a GDR except that it can be issued only to American citizens and can be listed and traded on a stock exchange of USA.

Indian Depository Receipt- IDR is a financial instrument. It is issued  by domestic depository to the Indian citizens against the shares of foreign company. IDR is denominated in Indian rupees. It helps issuing company, i.e. foreign companies to raise capital from Indian securities market.
 

E-banking means any user with a PC and a browser can get connected to the banks’ website to perform any of the virtual banking functions and avail of any of the banks services. There is no human operator to respond to the needs of the customer. 

lassification of Sources of Funds

Period Basis

• On the basis of period, the different sources of funds can be categorized into three parts. These are long-term sources, medium-term sources and short-term sources.
• The long-term sources fulfill the financial requirements of an enterprise for a period exceeding 5 years and include sources such as shares and debentures, long-term borrowings and loans from financial institutions.
• Such financing is generally required for the acquisition of fixed assets such as equipment, plant, etc.
• Where the funds are required for a period of more than one year but less than five years, medium-term sources of finance are used. These sources include borrowings from commercial banks, public deposits, lease financing and loans from financial institutions.
• Short-term funds are those which are required for a period not exceeding one year. Trade credit, loans from commercial banks and commercial papers are some of the examples of the sources that provide funds for short duration.
• Short-term financing is most common for financing of current assets such as accounts receivable and inventories. Seasonal businesses that must build inventories in anticipation of selling requirements often need short-term financing for the interim period between seasons. Wholesalers and manufacturers with a major portion of their assets tied up in inventories or receivables also require large amount of funds for a short period.

Ownership Basis

• On the basis of ownership, the sources can be classified into ‘owner’s funds’ and ‘borrowed funds’.
• 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.
• Such capital forms the basis on which owners acquire their right of control of management. Issue of equity shares and retained earnings are the two important sources from where owner’s funds can be obtained.
• ‘Borrowed funds’ on the other hand, refer to the funds raised through loans or borrowings.
• The sources for raising borrowed funds include loans from commercial banks, loans from financial institutions, issue of debentures, public deposits and trade credit.
• Such sources provide funds for a specified period, on certain terms and conditions and have to be repaid after the expiry of that period. A fixed rate of interest is paid by the borrowers on such funds.
• At times it puts a lot of burden on the business as payment of interest is to be made even when the earnings are low or when loss is incurred. Generally, borrowed funds are provided on the security of some fixed assets.

Source of Generation Basis

• Another basis of categorizing the sources of funds can be whether the funds are generated from within the organization or from external sources.
• Internal sources of funds are those that are generated from within the business. A business, for example, can generate funds internally by accelerating collection of receivables, disposing of surplus inventories and Ploughing back its profit. The internal sources of funds can fulfill only limited needs of the business.
• External sources of funds include those sources that lie outside an organization, such as suppliers, lenders, and investors. When large amount of money is required to be raised, it is generally done through the use of external sources.
• External funds may be costly as compared to those raised through internal sources. In some cases, business is required to mortgage its assets as security while obtaining funds from external sources. Issue of debentures, borrowing from commercial banks and financial institutions and accepting public deposits are some of the examples of external sources of funds commonly used by business organizations.

NEED OF BUSINESS FINANCE:

1. Fixed Capital Requirement: In order to start a business, funds are needed to purchase fixed assets like land and building, plant and machinery.The funds required in fixed assest remain invested in the business for a long period of time.
2. Working Capital Requirement: A business needs funds for its day to day operation. This is known as working Capital requirements. Working capital is required for purchase of raw materials, to pay salaries, wages, rent and taxes.
3. Diversification: A company needs more funds to diversify its operation to become a multi-product company e.g. ITC.
4. Technology upgradation: Finance is needed to adopt modern technology for example uses of computers in business.
5. Growth and expansion: Higher growth of a business enterprise requires higher investment in fixed assets. So finance is needed for growth and expansion.

FINANCIAL INSTITUTION:

The state and central government have established many financial institutions to provide finance to companies. They are called development Bank. These are IFCI, ICICI, IDBI, LIC and UTI. etc.

MERITS:

1. Long term Finance: Financial Institution provide long term finance which is not provided by Commercial Bank.
2. Managerial Advice: They provide financial, managerial and technical advice to business firm.
3. Easy installments: Loan can be made in easy installments. It does not prove to be much of a burden on business.
4. Easy availibility: The funds are made available even during periods of depression.

LIMITATIONS/ DEMERITS:
1. More time Consuming: The procedure for granting loan is time consuming due to rigid criteria and many formalities.
2. Restrictions: Financial Institution place restrictions on the company’s board of Directors.

following are the two sources of finance that an established company can opt to expand its production capacity-
- Issue of shares- the company can issue share (equity and preference) as per its requirement in order to finance its expansion project. company has to pay an annual dividend on these shares. the decision regarding providing dividend is totally in the hands of management.

- issue of debentures- another source through which a company can finance its project is Debentures, it is th fixed charge liability against which company has to pay interest on regular intervals. debenture may be issued for short term and long term period but practically it is issued for a long term period.

other sources are loan from banks, loans from financial institutions etc

As a finance manager of the company, I would advice the directors to issue the preference shares as by issuing preference shares, a company is benefited in the following ways.

1. Lifetime retention - A company need is not bound to repay the preference share capital amount during its lifetime.

2. No charge on company's assets - The preference shareholders have no right on the assets of the concerned company. So in this manner, they have no right to claim any amount (by selling-off company's assets) in case the company fails to make dividend payments.

3. No obligation - In case, the company incurs losses, then it is not required to pay dividend to its preference shareholders. 

On the other hand, debentures will not be chosen because of the following demerits of debentures.

1. ​ The legal boundation of a company to pay interest on debentures increases its payment obligations .
2. The borrowing capacity of a company gets limited with further issue of debentures.

PUBLIC DEPOSITS: The deposits that are raised by company direct from the public are known as public deposits. The rate of interest offered on public deposits are higher than the rate of interest on bank deposits. This is regulated by the R.B.I. and cannot exceed 25% of share capital and reserves.

MERITS:

1. No charge on assets: The company does not have to mortgage its assets.
2. Tax Saving: Interest paid on public deposits is tax deductable, hence there is tax saving.
3. Simple procedure: The procedure for obtaining public deposits is simpler than share and Debenture.
4. Control: They do not have voting right therefore the control of the company is not diluted.

LIMITATIONS:

1. For Short Term Finance: The maturity period is short. The company cannot depend on them for long term.
2. Limited fund: The quantum of public deposit is limited because of legal restrictions 25% of share capital and free reserves.
3. Not Suitable for New Company: New company generally find difficulty to raise funds through public deposits.

Retained Profits: For any company, the amount of earnings retained within the business has a direct impact on the amount of dividends. Profit re-invested as retained earnings is profit that could have been paid as a dividend. The management of many companies believes that retained earnings are funds which do not cost anything, although this is not true. However, it is true that the use of retained earnings as a source of funds does not lead to a payment of cash. The dividend policy of the company is in practice determined by the directors. From their standpoint, retained earnings are an attractive source of finance because investment projects can be undertaken without involving either the shareholders or any outsiders. The use of retained earnings as opposed to new shares or debentures avoids issue costs. The use of retained earnings avoids the possibility of a change in control resulting from an issue of new shares. Another factor that may be of importance is the financial and taxation position of the company’s shareholders. For example, because of taxation considerations, they would rather make a capital profit (which will only be taxed when shares are sold) than receive current income, and then finance through retained earnings would be preferred to other methods.

Advantages of Retained Earnings

• The management of many companies believe that retained earnings are funds which do not cost anything, although this is not true. However, it is true that the use of retained earnings as a source of funds does not lead to a payment of cash.
• The dividend policy of the company is in practice determined by the directors. From their standpoint, retained earnings are an attractive source of finance because investment projects can be undertaken without involving either the shareholders or any outsiders.
• The use of retained earnings as opposed to new shares or debentures avoids issue costs. The use of retained earnings avoids the possibility of a change in control resulting from an issue of new shares.

• Another factor that may be of importance is the financial and taxation position of the company’s shareholders. If, for example, because of taxation considerations, they would rather make a capital profit (which will only be taxed when shares are sold) than receive current income, then finance through retained earnings would be preferred to other methods.

Disadvantages of Retained Earnings

• A company must restrict its self-financing through retained profits because shareholders should be paid a reasonable dividend, in line with realistic expectations, even if the directors would rather keep the funds for re-investing.
• At the same time, a company that is looking for extra funds will not be expected by investors (such as banks) to pay generous dividends, nor over-generous salaries to owner-directors.
• Scope of retained earnings is limited by amount of profits. A loss incurring firm has no source called retained earnings.

• The sources for raising borrowed funds include loans from commercial banks, loans from financial institutions, issue of debentures, public deposits and trade credit.
• Such sources provide funds for a specified period, on certain terms and conditions and have to be repaid after the expiry of that period. A fixed rate of interest is paid by the borrowers on such funds.
• At times it puts a lot of burden on the business as payment of interest is to be made even when the earnings are low or when loss is incurred. Generally, borrowed funds are provided on the security of some fixed assets.

Long-term financing sources can be in the form of any of them: Share Capital or Equity Shares. Preference Capital or Preference Shares. Retained Earnings or Internal Accruals.

Public enterprises are the form of business organization which are owned by government either fully or partially. There are different types of public enterprises such as public corporation, departmental undertaking and government company. 

Features of Departmental Undertakings

It is established by the government, and its overall control rests with the minister. It is financed through government funds. It is subject to budgetary, accounting, and audit control. Its policy is laid down by the government, and it is accountable to the legislature.

NEED OF BUSINESS FINANCE:

Uses

1. Fixed Capital Requirement: In order to start a business, funds are needed to purchase fixed assets like land and building, plant and machinery.The funds required in fixed assest remain invested in the business for a long period of time.
2. Working Capital Requirement: A business needs funds for its day to day operation. This is known as working Capital requirements. Working capital is required for purchase of raw materials, to pay salaries, wages, rent and taxes.
3. Diversification: A company needs more funds to diversify its operation to become a multi-product company e.g. ITC.
4. Technology upgradation: Finance is needed to adopt modern technology for example uses of computers in business.
5. Growth and expansion: Higher growth of a business enterprise requires higher investment in fixed assets. So finance is needed for growth and expansion.

 Classification of Sources of Funds

(i) Period Basis On the basis of time period, a business finance can be classified in three categories.

(a) Long Term Finance Funds which are required to be invested In a business for a long period of time, that is more than five years are known as long term finance.

(b) Medium Term Finance The finance required by business enterprises for more than one year but less than five years is known as medium term finance.

(c) Short Term Finance The finance required for a short period upto one year is known as short term finance.

(ii) Ownership Basis On the basis of ownership, the sources can be classified into ‘owner’s fund’ and ‘borrowed fund’,

(a) Owner Fund It refers to the funds contributed by owners as well as the accumulated profit of the company this fund remains with the company and it has no liability to return this fund. e.g., equity shares, retained earnings.

(b) Borrowed Fund It refers to the borrowing of the firm. It includes all funds available by way of loans or credit

(iii) Source of Generation Basis Another basis of categorising the sources of funds can be whether the funds are generated from with in the organisation internal or from external sources.

Commerce is considered as the backbone of industry because it performs the following functions :

1. Helps in eliminating the hindrances of persons.
2. Helps in eliminating the hindrances of place.
3. Helps in eliminating the hindrances of time.
4. Helps in eliminating the hindrances of finance.
5. Helps in eliminating the hindrances of risk.
6. Helps in eliminating the hindrances of information.

Government Company is a company or an organization in which at least 51% of the paid up share capital is held by the central government or the state government or partly by both central and state government. These are many government companies, few of them are, Steel Authority of India Limited, Bharat Heavy Electricals Limited, Coal India Limited, State Trading Corporation of India, etc.

Management – concept, objectives, and importance. Management as Science, Art and Profession. Levels of Management. Management functions-planning, organising, staffing, directing and controlling.

Suitability: The public corporation is suitable where the undertakings require:

• monopoly powers.
• special powers, defined by the act or statute.
• regular grants from the government.
• an appropriate combination of public accountability & operational autonomy.

It is evident that each form has certain advantages as well as disadvantages. Therefore, it is important to choose an appropriate form of organisation.
Factors that determine the choice of form of
organisation:

1. Cost and ease in setting up the organisation: From the’point of view of initial cost, sole proprietorship is the preferred form as it involves least expenditure.
   A company form of organisation, on the other hand, is more complex and involves greater costs.
2. Liability : In case of sole proprietorship and
   partnership firms, the liability of the owners/ partners is unlimited. In Joint Hindu Family Business, only the Karta has unlimited liability. In cooperative societies and companies, however, liability is limited.
3. Continuity: In case the business needs a permanent
   structure, company form is more suitable. For short term ventures, proprietorship or partnership may be preferred.
4. Management ability : A sole proprietor
   may find it difficult to have expertise in all functional areas of management. In other forms of organisations like partnership and company, there is no such problem.
5. Capital consideration : Companies are in a better
   position to collect large amount of capital by issuing shares to a large number of investors. Partnership firms also have the advantage of combined
   resources of all partners. But the resources of a sole proprietor are limited.
6. Degree of control: If direct control over operations
   and absolute decision making power is required, sole proprietorship may be preferred.

A company, abbreviated as co., is a legal entity representing an association of people, whether natural, legal or a mixture of both, with a specific objective. Company members share a common purpose and unite to achieve specific, declared goals.