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How to find Funds for a Company

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Following is a brief summary about how a Limited Company can find investments or additional funds for its expansion or diversificat6ion or for other needs. All the following methods has its own procedures, specifically mentioned in the Companies Act 2013 and related rules. Different companies have different issues and require different funding requirements. Hence the consultation with a Business Consultant, will give more idea about the various legal formalities, procedures, provisions of the Companies Act , rules, restrictions and Conditions applicable for each methods. Biswas Filing Service is a group of Company Secretaries, Chartered Accountants and Advocates, offering Business Consultancy in the State Kerala.

1. Equity Shares

Its is also called owners share. Equity share holders are the real owners of the company. They have the voting powers in the general meetings, they are involved in the decision making of the company. They have the rights in profits of the company without any limit. They have the power to appoint or remove, auditors and directors. They have the right to amend all clauses of the Memorandum of Association and Articles of Association. Those who holds more equity share in a company has more control over the company. There are two types of Equity Shares viz, ordinary Equity Share and Equity Shares with differential voting rights. All types of Equity Shares are irredeemable.

Issuing Equity Shares to prospective investors is a method of funding. However, the existing shareholders should think about the percentage of shares they are presently holding and how the new investor’s investment will affect the existing percentage of Share Holding.

Equity shares can also issue at a premium, subject to certain conditions. For example, we can issue shares having face value of Rs 10, at Rs 100, by adding a premium of Rs 90.

2. Preference Share Capital

Every Company limited by shares may, if so authorised by its articles, issue preference shares which are liable to be redeemed within a period not exceeding twenty years from the date of their issue. These shares have a preferential right over Equity Share Holders, for dividend and repayment of capital in case of winding up. The Preference Shares are more like a debt instrument. It has a fixed rate of dividend every year and it will be repaid on a fixed date. There are different types of Preference Shares, like Preference Shares, which can be converted into equity shares, Cumulative Preference Shares etc.. Preference Shares can also issue at premium

3. Debentures

Debentures are debt instruments, issued by a company to raise funds as a loan otherwise from banks. Section 71 of the Act enables that a company may issue debentures with an option to convert such debentures into equity shares, either wholly or partly at the time of redemption.

A company may issue secured or unsecured debentures subject to such terms and conditions as may be prescribed. The debentures are also issued for a fixed term, which may redeem after the time specified or converted into shares as per the debenture agreement

4. Deposits

Every Public Company can invite deposits from the public, subject to the conditions specified in the Company Act 2013 and acceptance of Deposits Rules. The deposits are also like debentures

5. Loan from Directors

Every Company can accept Loan from a director subject to the condition that the amount given by the Director was not borrowed by him. And also, at the time of giving Loan, he should be a Director of the Company. Indirectly speaking, if there is an investor willing to invest and existing shareholders are not interested in diluting their shareholding percentage, then we can include him in the Director Board of the Company as a Director and accept money from him. Company can pay interest for such loans.

6. Loan from Share Holders

A Company can accept loans from shareholders, for fulfilling any precondition in any loan agreement with Financial Institutions

7. Loans from Financial Institutions

A Company can borrow funds from financial Institutions, without any limit, subject the conditions specified in the Company Act 2013

8. Grants from Government, Departments or Organizations

Some institutions like start-up mission, etc may provide grants like idea grant, or financial assistance for promoting entrepreneurship in the Country. These measures are very useful for start-ups


Gayatri Dhote

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