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Benefits and drawbacks of capital funding  

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Owner finance means of finance capital and their own funds. Such partnerships and sole proprietorships are generally small-scale business is operated by the owner trough their own financial. Works on the basis of the equity of joint stock companies, shareholders and investors, but their management is different.

Capital finance benefits:

The benefits of capital finance include:

In nature (i) Permanent: In the nature of finance capital is permanent. Liquidation will not occur as long as you do not need to pay. Once the stocks are sold in the market remain. Any shareholder of the company where you wish to sell those shares listed in the stock market can do. However, this does not constitute a liquidity problem for the company.

(II) Payment: Capital finance the solvency of the business increases. It also helps in increasing your financial situation. In times of need by inviting offers from the public to subscribe for new shares of the capital stock can be increased. Ensure that the company is facing a financial crisis will be successful.

(III) credit worthiness: High capital gains financial credit worthiness. That capital finance in which a business can easily get loans from banks has a high rate of. Unlike companies who are under serious debt burden, no longer remain attractive to investors. That will be required to pay interest on debt and finance charges less capital finance refers to the high rate of so much profit will be distributed among the shareholders.

(IV) no interest: No interest is paid in case of any foreign finance capital. The net income of these operations that can be used to expand the scale of business increases.

(v) Motivation: Finance capital profits as such remains with the owner, so motivate him to work harder. A sense of inspiration and care is greater than the owner of a business that is financed with his own money. Investigate these opportunities and profit-conscious businessman and active disclosure.

(VI danger of bankruptcy): No payment no borrowed capital, therefore, lime must be made any solid timing. What makes this entrepreneur free from financial worries and there is no danger of bankruptcy.

(VII) Liquidation: In case of liquidation or winding up is there a charge on the assets of any foreign company. All assets belong to the owner.

(VIII) Increasing Capital: Both increases and authorized capital after fulfilling certain legal requirements may be given to Joint Stock Companies. This extra finance can be raised by selling shares in times of.

(IX) macro-level Benefits: Many social and finance capital at the macro level creates an advantage. First reduces the element of interest in the economy. This Tree makes people panic and financial distress. Secondly, profit growth of joint stock companies, without taking an active role in its management gives a large number of people to share. Thus, people can win cash prizes you can use the savings to in a long time.

Capital the financial penalty:

Capital Finance disadvantages:

working capital (i) Reduction: If the majority of the funds is to invest in fixed assets of a business then you can feel if a shortage of working capital. This problem is common for small businesses. The owner there is a fixed amount of capital to get started, and that is largely consumed by fixed assets. So less is left for the current expenses of the business. Large-scale business financial management can also cause a similar problem.

(II difficulties in making regular payments): In the case of equity financing, the businessman may feel problems making the regular payment of the nature. Sometimes you can sue sales revenues due to seasonal factors. If enough money is not available to short-term difficulties in meeting obligations.

(Higher taxes III): As more taxable income to any foreign business interest has to be paid. A higher proportion of these taxes is. There is no more double taxation in specific cases. Joint-Stock Company, before any allowance all income will be taxed. Then again when dividends are paid to recipients of income tax.

(IV) Limited Expansion: Due to the scale of the operation to increase capital of finance for the businessman it is not possible. Business expansion, building new facilities, there is a need to capture great financial markets, and more. Small businesses therefore they have to expand the market all kinds of professional guidance. Too much emotional owners try to keep the business within such a limit to keep it under control that there is a general tendency. Funded by the business owner himself is obsessed with many of the chance of fraud and embezzlement. These factors hinder business expansion.

Research and development (v) lack of: Only operated a business capital finance, lack of research and development. It takes a long time and great new product or design research activities is necessary to achieve a financial. These research activities are undoubtedly expensive, but the end result was released when huge revenues is achieved. You, as the owner if it is using its own capital to finance long-term research projects and short-term obligations will be facing in meeting the problem, but the problem will occur. This factor discourages investment in capital for a business that is financed by research projects.

Change (VI) Delay: When it wears out, capital finance, modernization, or renewal of capital equipment during working on the problem businesses face. The owner tries to use your current equipment for as long as possible. Sometimes can ignore the deteriorating quality of production, and even old equipment that continues to work on.

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Posted : March 17, 2020 1:40 am
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