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8/19/12

Equity SHARES

&DEBENTURE

PREPARED BY:-Sumit Kumar 1135Yash Deliwala 1141Sourbha Deshpande 1128

Awasf Khan 1116

11Kohinoor Business School & CMR,Khandala

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Need for long term Finance

Long term vs. short term(workingcapital) funds requirements

For modernization, expansion,diversification; huge quantitiesreqd., irreversible decision

Asset-liability mismatch, interestrate risk, liquidity risk.

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Equity Shares are issued and are traded everyday in the stock

market.

Equity share holders only get dividend after preferenceshareholders & debenture holders.

The returns on the equity shares are not at all fixed. It dependson the amount of profits made by the company.

The board of directors decides on how much of the dividendswill be given to equity share holders. Share holders can accept toit or reject the offer during the annual general meeting.

Equity shareholders have the right to vote on any resolutionplaced before the company.

EQUITY SHARES

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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

TYPES OF EQUITY SHARES

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ISSUE OF SHARES

Prospectus

Applicati

on

Repayment/

dividend

Allotment

Detail of a Company & Shares in Prospectus. 90 % application is necessary If excess application received then company issueshares by pro rata basis

full amount can be called up by company at thetime of application or it can be paid up ininstallments also (calls)

share of the company may be issued in any of thefollowing three ways:

1. At par;2. At premium; and3. At discount.

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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

CONT.

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Instrument of debt executed by the company

A certificate of loan

Company pays pre specified percentage ofinterest

Part of the company's capital structure

Debentures are generally secured against the

companys assets

Convertible debentures can be either fully orpartly converted into Shares

Convertible debentures may carry a lower88

DEBENTURES

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Security Point of Viewi. Secured Debenturesii. Unsecured Debentures

Tenure Point of Viewi. Redeemable Debenturesii. Perpetual Debentures

Mode of Redemption Point of Viewi. Convertible Debenturesii. Non-Convertible Debentures

Coupon Rate Point of View

TYPES OF DEBENTURES

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ADVANTAGES

1. Control of company is not surrendered to debenture holders becausethey do not have any voting rights.2. Interest on debenture is an allowable expenditure under income taxact, 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 highdenominations.3. They are not meant for companies earning greater than the rate ofinterest 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 arethe most sought financial instruments for bothinvestment or for speculation.

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