METHODS OF FINANCE - Share capital (LONG TERM)
Share capital - Finance raised through the sales of shares by ONLY private and public limited companies.
SHARE CAPITAL IS A FORM OF EQUITY CAPITAL e.g. the shareholder becomes a part owner of the business.
Shareholders will be rewarded for their investment by the repayment of dividends but may also benefit from an increase in share pricing increasing the value of their shares.
Issuing shares is a complex and costly process so only really an option for raising larger amounts of finance to fund long term projects.
ADVANTAGES OF SHARE CAPITAL
SHARE CAPITAL IS A FORM OF EQUITY CAPITAL e.g. the shareholder becomes a part owner of the business.
Shareholders will be rewarded for their investment by the repayment of dividends but may also benefit from an increase in share pricing increasing the value of their shares.
Issuing shares is a complex and costly process so only really an option for raising larger amounts of finance to fund long term projects.
ADVANTAGES OF SHARE CAPITAL
- Only need to pay dividends if a profit is being made and the amount of dividend is not fixed.
- Possible to raise large amounts of finance
- No interest repayments
- Loss of ownership as shareholders are part owners (ownership diluted)
- Potential risk of loss of control for a Plc with a threat of hostile takeovers.
- Complex and costly process of issuing shares, especially for a Plc.
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