Why Do Companies Issue Shares and Debentures

A share is a part of capital when a company feels need of money or capital they announce their shares to the general public in order to gain capital, companies issue certificates to those person who purchase the share of the company names as Share Certificate.

There can be so many reasons for company to issue shares they can be, purchase of equipment, machinery or extension of company branches, extension of business from one country to another.

A company’s capital is divided into two parts one is share, company\s share is value at the market price according to the name fame and goodwill and financial position of the company, the price of share is valued.

For Example: A company has a need of a capital and the value of its share is 10 Dollars each company needs an amount of one million dollars so the company will issue its 1 lace shares to market and people who purchases its share will be given Share Certificate. Anyone no matter how much shares he do purchase a certificate will be issued to them.

The company on behalf of the money contributed by the public to money issue the profit, according to the contribution, profit will be distributed, when a company earn profit annually profit is distributed among shareholders but the preference of profit is given to the debenture holders.

Debentures are issued by the Joint Stock Company mostly, when the need more capital (working capital) they borrow money from public in the shape of debentures. It is a loan that a person gives to company and on behalf of this loan company issue the fixed profit/interest to them, the debenture holder has no concern with the earning of the company, company is earning or not debenture holder do not care at all because on annual basis they will be paid according to their contribution.

The Shares are further divided into 3 categories ordinary shares, preference shares, founder’s shares.

Ordinary share holders are paid after the preferred shares claim as they are on the priority for the payment whereas deferred or founder’s shares are paid in last after the distribution and claim of both preferred shareholders and ordinary share holders.
The right of profit on company of preferred share holders are on the top priority after the debentures holders because debentures holders provides the loan to company and it is the liability of the company to debenture holders first.

Leave a Reply

Your email address will not be published. Required fields are marked *