- SOURCE OF PERMANENT CAPITAL-: The owners fund remains permanently invested in the business. It is non refundable like loan or borrowed fund. Most of owners fund is used for acquiring fixed assets.
- PROVISION FOR RISK CAPITAL-:Owners fund is also known as risk capital of the business, as the return on this capital depends on the rate of earning of the company i.e if the business incurs a loss then the owners might not be able to recover their initial investment well, whereas if there is a profit higher level of return is given on owners fund.
- NO SECURITY REQUIRED-: There is no security offered against ownership capital.
- SOURCES OF OWNERS FUND-: Comprises of share capital & retained earnings.
SOURCES OF BUSINESS FINANCE
CONCEPT OF BUSINESS FINANCE
Definitions
CAPITAL&CREDIT FUNDS
Business finance refers to the capital& credit funds invested in the business.
TYPES OF FUNDS
1) OWNERS FUND
2) BORROWERD FUND
Definitions
OWNERS FUND
Owners fund refers to the fund invested by the owners as well as the accumalated profit of the company. This fund remains within the company and has no liability to return it. Ex- equity shares ,retained earnings
To remember :
accumalated profit of company
remains in the business/ permanent source of capital
FEATURES OF OWNERS FUND
Definitions
BORROWED FUND
refers to borrowing of the firm
To remember :
borrowing of the firm / by loans or credit
FEATURES OF BORROWED FUND
- FIXED TIME -: The borrowed fund is raised for specific times. It maybe raised for short term, medium term , long term as well.
- SECURITY-: The firms usually get borrowed funds against security of asset.
- REGULAR PAYMENT OF INTEREST-: It is a legal compulsion for the firm to pay a regular interest on borrowed fund. The principle amount has to be paid within a fixed period of time.
- CONTROL-: The borrowed fund security holders do not get a right to control the business activities of the firm. They only have a right to sue them incase of default in repayment of loan or interest.
- SOURCE OF BORROWED FUND-: Debentures, loan from financial institutions public deposits etc.
