This is a special feature that corporations take advantage of because it can attract lenders and usually carries a lower interest rate for the issuing company. Equity shares are the most important source of raising long term capital by a company. 4. Dev has two projects A and B in hand. Franchising. The investment in equity costs higher than investing in debt. Preference shares have some characteristics of both equity shares and debentures. The shareholder is the owner of the legal entity and is not entitled to These instruments, however, have a lot of differences. However, bank loans are non-transferable. At the time of liquidation of the company, only after the payment of principal to the preference shareholders, the claims of the equity shareholders can be satisfied. retail, corporate, investment banking, etc. The companies can raise money through debentures easily compared to equity and preference shares. Preference shares are a long-term source of finance for a company. They represent the ownership of a company and therefore, the capital raised by the issue of these shares … Source of Fund # 1. #1 Convertible debentures. By investing in equity, an investor gets an equal portion of ownership in the company, in which he has invested his money. Answer: A large industrial enterprise can raise capital from the following sources. MCQ Questions for Class 11 Business Studies with Answers were prepared according to the latest question paper pattern. Debenture holders do not have any voting rights and there is no dilution of ownership. These sources of funds are used in different situations. Convertible debentures are debentures which are convertible wholly or partly into equity shares after a fixed period of time. 3. Practicing these Formation of a Company Class 11 Business Studies MCQs Questions with Answers really effective to improve your … A preference share partakes the characteristics of both the shares and the bonds. Fixed rate of dividends are paid to the preference share holder as in case of debentures, irrespective of the profits earned company is liable to pay interest to preference share holders. Optionally Convertible Debentures (OCD): The investor has the option to either convert these debentures into shares at price decided by the issuer/agreed upon at the time of issue. Debentures. Long term sources of finance refer to the funds, which are required for investment in business for a period exceeding up to five years. Disadvantages of debentures. These are also known as preferred stock or preferred shares. Equity Shares 2. Equity share and Preference share are the two types of share that a company issues. Since these stocks are given preference over equity shareholders, they are called preference shareholders. We have compiled NCERT MCQ Questions for Class 11 Business Studies Chapter 7 Formation of a Company with Answers Pdf free download. Broadly speaking a shareholder will provide equity capital in return for shares (stock) which usually will incorporate voting rights. Debt Capital: Debt capital includes debentures and term loans. It is an economical method of raising funds. Debentures 4. Ordinary shares also known as equity shares are a unit of ... Debentures are issued only for a time period and thus the company must pay the amount back to the debenture holders at the end of the agreed period. Generally, debentures and equity shares are the two choices sources of long-term capital for the company. 1. Equity share capital is a prerequisite to the creation of a company. 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