7 SOURCE OF CAPITAL TO COMPANIES

-A share is a unit of capital in a company e.g. if a company states that its capital is ksh.100,000 divided into equal shares of ksh.10 each.

-Each shareholder is entitled to the company’s profit proportionate to the number of shares he/she holds in the company.

Types of shares;

Ordinary shares;-Ordinary shares have the following rights:

Have voting rights
Have no fixed rate of dividends. The dividends on them vary according to the amounts of profit made
They have a claim to dividends after the preference shares
If the company is being liquidated, they are paid last after the preference shares

Preference shares;-They have the following characteristics;

Have a fixed rate of sharing profits(dividends)
Have a prior claim to dividends over the ordinary shares
Have no voting rights
Can be redeemable or irredeemable. Redeemable shares are the ones that can be bought back by the company at a future date while irredeemable ones are ones that cannot be bought back
Can be cumulative or non-cumulative. Cumulative shares are the ones that are entitled to dividends whether the company makes profit or not. This means if the company makes a loss or a profit which is not enough for dividends in a certain year, the dividends to cumulative shares are carried forward to the next year(s) when enough profit are made

-Non- cumulative shares are the ones whose dividends are not carried forward to the following year(s)

This refers to loans from the public to a company or an acknowledgement of a debt by a company

They carry fixed rate of interest which is payable whether profit are made or not.

They are issued to the public in the same way as shares.

They can be redeemable or irredeemable.

Redeemable debentures are usually secured against the company’s assets in which case they termed as secured debentures or mortgaged debentures.

NB: Where no security is given, the debentures are called unsecured /naked debentures.

Loans from bank and other financial institutions;-A company can borrow long term or short term loans from banks and other money lending institutions such as Industrial and Commercial Development Corporation [I.C.D.C]

These loans are repayable with interest of the agreed rates.

Profits ploughed back;-A company may decide to set aside part of the profit made to be used for specified or general purposes instead of sharing out all the profit as dividends. This money is referred to as a reserve.
Bank overdraft;-A customer to a bank may make arrangements with the bank to be allowed to withdraw more money than he/she has in the account.
Leasing and renting of property.
Goods brought on credit.
Acquiring property through hire purchase.