Issue of shares at discount
A company may issue shares at a discount i.e at a value below its par value. The following conditions must be satisfied in connection with the issue of shares at a discount :-
The shares must be of a class already issued
Issue of the shares at discount must be authorised by resolution passed in the general meeting of company and sanctioned by the company law board.
The resolution must also specify the maximum rate of discount at which the shares are to be issued
Not less than one year has elapsed from the date on which the company was entitled to commence the business.
The shares to be issued at discount must issued within 2 months after the date on which issue is sanctioned by the company law board or within extended as may be allowed by the Company Law Board.
The discount must not exceed 10 percent unless the Company Law Board is of the opinion that the higher percentage of discount may be allowed in special circumstances of case.
Cost is the major advantage. Debentures are to be serviced for the contracted period of time, while equity servicing is perennial.
sources of Funds 1. Profit from Operations 2. Issue of Shares 3. Issue of Debentures 4. Bank Loan (Long Term) 5. Sale of fixed Assets Application of Funds 1. Expense for operations 2. Redemption of shares 3. Redemption of Debentures 4. Payment of Loans 5. Purchase of Assets
IMPORTANT SOURCES OF FINANCE FOR BUSINESSShort term finance: bank credit, trade credit, instalment credit, customer advances.Medium term finance: issue of shares, issue of debentures, loans from banks and other financial institutions, public deposits (for existing concerns), ploughing back of profits (for existing concerns).Long term finance: issue of shares, issue of debentures, loans from financial institutions, ploughing back of profits( for existing concerns).
Most of the time, the new companies will offer their shares at discount prices. There is no law that governs/controls the prices at which the company can offer their shares to people for sale.
Yes
capital loss to be written off over the tenure of the debentures .
Cost is the major advantage. Debentures are to be serviced for the contracted period of time, while equity servicing is perennial.
Companies who are in the market from long period of time can issue shares at discount.
when debentures are issued at discount, it is prudent to write off the discount
when debentures are issued at discount, it is prudent to write off the discount
when shares aree issued at a lower than the face value they are said to be issue of share at discount. the main reason behind issuing share is to attract retailer
ordinary shares are equity whereas debentures are debt - debt is always payable, whereas, equity holders do not always necessarily demand a dividend payment immediately. it would depend on what the company wanted to use the funds for. if the funds were used to fund a project where the returns were not expected for a few years, a company may wish to issue shares rather than debentures as the debentures would have to be paid regardless of when the returns came.
sources of Funds 1. Profit from Operations 2. Issue of Shares 3. Issue of Debentures 4. Bank Loan (Long Term) 5. Sale of fixed Assets Application of Funds 1. Expense for operations 2. Redemption of shares 3. Redemption of Debentures 4. Payment of Loans 5. Purchase of Assets
preliminary expenses, discount on issue of shares
debit redemption of debentures accountcredit cash / bank
* The financial Institutions. * The Corporates who issue shares and debentures or bonds etc. * The media agencies and broadcasters. * And last but not the least the Investors in the Financial Markets.
Most of the time, the new companies will offer their shares at discount prices. There is no law that governs/controls the prices at which the company can offer their shares to people for sale.