Company business funding sources

Different Source from COMPANY BUSINESS FUNDING

Business funding means business capital. (Business Capital)

Our topic today is - Business funding, in this topic, we will know what are the resources for a small business to raise a small business, and when and how they use them,

We had talked to COMPANY FORMATION before this, and understood how important it is for a stock market investment to understand its fund sources by a business, and understood in very short terms about capital sources at different stages of the business I understood,

Today, taking the same topic together, we will understand both the different stages of business and business funding in Detail,

BUSINESS FUNDING STAGE -1- PROMOTERS, ANGEL INVESTOR

If you have ever thought of doing business, then you first have a business idea, like - schoolbag manufacturing idea, maybe you have experience in the business you want to do, and also Also you are very confident that your business will be very successful,

SHARE CAPITAL

We saw the promoter and angel investor bring whatever capital to start the business, called SEED FUND, and when SEED FUND is transferred to the company's account or INITIAL BUSINESS FUND now becomes SHARE CAPITAL,

Now suppose

The company has a total share capital of Rs.10 lakhs, and the promoter and investor together distribute the total capital of the company to the share of the FACE VALUE of Rs.10, here

So the total number of shares is - 1 lakh shares

Or of the value of each share is Rs. 10

And thus the total capital of the company becomes

SHARE CAPITAL = 1,00,000 X 10 = Rs. 10,00,000

Company Valuation

In such a situation, when the company has only 10 lakh rupees, and there is no other asset, then the valuation of the company will be - 10 lakh rupees,

Valuation = Total assets - Total liabilities,

Right now the company has no obligation, only Rs 10 lakh,

In this way, a company starts doing its business with share capital, and as the profit of the company increases, its wealth also increases and thus the valuation of that company also starts increasing,

AUTHORIZED SHARE (CAPITAL)

If we had divided the above 10 lakh share capital with a face value of Rs 10, then the company had total shares - 1 lakh shares

Now this 1 lakh share will be called AUTHORIZED SHARE (Capital) of the company,

And authorized shares will be divided between the company's promoters and investors,

It is important to note that not necessarily the total share of the company should be distributed between the promoters and the investors, like not all the 1 lakh shares are divided between the three, it is possible that the promoters will get 40% shares and Angle Investors should be given 10 -10% shares and the remaining 40% should be kept in the company's account.

ISSUED SHARE (CAPITAL)

We saw 40% of the shares from authorized capital to the promoters and 10 -10% to Angel Investors.

In this way, 60% of the company's shares which have been taken out of authorized capital, it is called ISSUED SHARE (Capital),

It is also called ALLOTTED SHARE,

And the authorized shares that the company has retained, in this case, 40% shares will be called AUTHORIZED BUT NOT ALLOTTED at the moment,

SHAREHOLDING PATTERN

By shareholding pattern, we mean how much and who is ISSUED SHARE, like the above-mentioned example, currently ISSUED SHAREHOLDING pattern will be something like this-

Sr. NO. NO. OF SHARES OWNED BY SHAREHOLDING

1 PROMOTER 40%

2 ANGLE INVESTOR -1 10%

3 ANGLE INVESTOR -2 10%

BUSINESS FUNDING STAGE -2 - THE VENTURE CAPITALIST

As the business progresses, and makes a profit, after a few years the promoters and investors owning that business want to grow that business more,

For example, if promoters and investors are in one city of India, they think that if I open my company's branches in other cities of my state, then the company will get more profit, and business will increase,

This again requires business funding and the need for business funding i.e. capital, and for this kind of capital, the company needs a new investor, who gives the company money to grow its business. And he should also be given some share in the benefits of return,

Now that the company has established its business in a city, and is continuously making a profit, the company is likely to get some big investors, and when it approaches a new investor, Gets, which gets ready for the investor in exchange for shares in the company,

The person investing on this STAGE is called VENTURE CAPITALIST (VENTURE Capitalist)

And the funding that comes in this short term is called VC funding,

When a new investor arrives, the valuation of the company or says NET WORTH is taken out at that time, and the share is given in exchange for the investment made by the new investor according to the new valuation,

Now, assuming the business started 10 lakh to 4 years ago, its valuation has already gone up to 40 lakhs, so the amount that VC funding will invest in the ratio of 40 lakhs will be given as share,

That is, instead of 10% shares in that company, VC FUNDING should come to 4 lakh rupees,

Now, whenever such a company has to make money from the new investor in exchange for the shares, it can issue shares keeping in mind the current valuation,

VC's first investment, Series A FUNDING,

And for the second time, after taking investment from VC, it will be named - Series B FUNDING

As soon as an investor invests, there is something new or a slight change in the shareholding pattern,

It is also to be noted that any old investment can be exited by selling its shares according to the CURRENT valuation of the company,

If in the EXAMPLE we are talking about, 10% shares will be taken out of NOT ALLOTTED AUTHORIZED SHARE to VC, and the new shareholding pattern will be something like this-

Sr. NO. NO. OF SHARES OWNED BY SHAREHOLDING

1 PROMOTOR 40%

2 ANGLE INVESTOR -1 10%

3 ANGLE INVESTOR -2 10%

4 VENTURE CAPITALIST 10%

BUSINESS FUNDING STAGE -3 - THE BANKERS
BUSINESS FUND is always required by any business to increase their BUSINESS, and there is also an option to make money from the BANK, and all banks offer business loans,

The point to be noted is that a fund from a bank is a LOAN, above which a fixed rate interest is to be paid, and there is also a pressure to pay the LOAN, which will serve the benefit of the business. Does,

In this way, if the company does not have other sources, it also takes a loan from the bank, but for an investor, the thing to be noted is that the business fund taken from the bank is like a LOAN and DEBT, and the closing of the company In the case of repaying a bank loan is the priority of the company, as well as having more bank loan over a company reduces its ability to make a profit, and this is not good for the investor,

BUSINESS FUNDING STAGE -4 PRIVATE EQUITY (PE)

A company has another option for BUSINESS FUNDING, PRIVATE EQUITY, also known as PE in the shortcode,

PRIVATE EQUITY you can think of as VENTURE CAPITALIST, and hence it is ranked fourth in the series of BUSINESS FUNDING,

PRIVATE EQUITY is usually a very large private finance company that wants to invest in a GROWING BUSINESS as an INVESTOR,

And a company whose business continues to grow requires a greater proportion of BUSINESS FUNDING to grow its business,

And as such the company has a choice of PRIVATE EQUITY,

Now the EXAMPLE we saw above, in that case, if the money is to be taken as an investment from PRIVATE EQUITY as well, then again the NET WORTH (VALUATION) of the company will be calculated,

Suppose, the company has made more profit in the next two years and now if the valuation of the company or NET WORTH becomes 1 crore,

So such PRIVATE EQUITY will have to invest 10 lakhs for 10% share in the company.

And the overall shareholding pattern of the company will be as follows-

Sr. NO. NO. OF SHARES OWNED BY SHAREHOLDING
1 PROMOTOR 40%
2 ANGLE INVESTOR -1 10%
3 ANGLE INVESTOR -2 10%
4 VENTURE CAPITALIST 10%
5 PRIVATE EQUITY 10%
BUSINESS FUNDING STAGE -5 THE IPO
IPO-IPO - Application to buy shares of the company to the public,

What is an IPO? You can read about it in full detail here- link

Here it is important to understand the IPO in this context, that when a company needs a very large amount of BUSINESS FUNDING, it should follow the rule made by SEBI to get capital from PUBLIC to stock its stock Listing is required on the market,

And the company has to get an IPO before it gets LIST on the stock market,

BUSINESS FUNDING - SUMMARY
We have seen how a company arranges BUSINESS FUNDING in different ways to grow its business from the beginning, so SUMMARIZE your point of business funding by the company, then a company will have its business Every fund source has its own importance to increase BUSINESS FUNDING,

Here we have tried to understand from this topic of BUSINESS FUNDING how the company does FUND ARRANGEMENT to increase its business, and the biggest source of fundraising for a company is - through the logo through stock market Taking money, and so the company brings in an IPO, and does its business, and benefits its investors,

As an investor, we need to keep in mind the journey from the beginning of the business to the IPO, how to FUND SOURCE is using the company to grow its business, and who holds the main shareholding of the promoters in the company,

Your biggest problem with this idea will be that you will bring money to do this business, ie capital, you have to rent a place to start the business, arrange some registration, machine, and furniture. , You need to have more men, and all these are Capital Expense, and for this you need capital,

In such a situation, you need two types of business funding -

Fixed Capital - Fund for capital expenditure

Working capital - fund related to buying and selling anything you want to trade

If you want to make your idea a business, then you have to arrange for the capital yourself, because whether or not a new business will be successful, no one wants to make quick money due to this risk,

In such a situation, you can start with whatever savings money you have, or from your close family or relative, if you start your business in this way, then you will be called the promoter of whatever company you create,

BUSINESS PROMOTER

It is worth noting that the person who starts the business is called PROMOTER, and in such a situation you are starting this business alone, and investing capital on your own risk, so you are also PROMOTER of this business. Will be told

ANGLE INVESTOR

Now suppose that you have also persuaded two friends to meet your business capital shortage, and your friends give you money to fund the business,

So in the very beginning of the business fund, the money invested by your friends will not be invested as a LOAN, but as capital,

And your friends will be called ANGEL INVESTOR (Angel Investor),

SEED FUND or BUSINESS CAPITAL

The point to be noted here is that you PROMOTOR and ANGEL INVESTOR together have collected the INITIAL MONEY. Suppose the promoter and ANGEL INVESTOR together collected 10 lakh rupees, and this 10 lakh now starts the business,

So INITIAL MONEY would be considered SEED FUND as BUSINESS CAPITAL,

SEED FUND is kept in the company account in the name of the company, not in the account of the promoter or someone else, and when the entire SEED FUND gets into the company's account, that capital is now called SHARE CAPITAL is,

And those who bring that SEED FUND are given a certificate of stake (share) in the company, ie till now what we talked about promoter and angel investor, they will be given share certificate based on share capital,

Share capital means of a corporation share means the quantity that a corporation receives towards share capital from the issue of shares, both equity shares and preferred stock.

Share may be a unit in which capital of the corporate is split. Each share has it's nominal ( face ) value. Holders of these shares are called shareholders or members of the corporate.

Capital of a corporation is split into units of smaller denomination (say 1, 2, 5, 10 or 100) and every such unit has named a share.

For example, during a company total capital of

rupee 50,00,000 is split into rupee 5,00,000 units of rupee 10 each, then each unit of rupee 10 is named a share.

This, within the above case the corporate are going to be said to possess 5,00,000 shares of rupee 10 each. Rupee 10 is understood because of the nominal (face) value of the share.

KINDS of OR CLASSES OF SHARES

Section 43 of the businesses Act, 2013 prescribes that share capital of a corporation broadly are often of two types of classes:
1. Preference shares; and

2. Equity shares.

1. preferred stock [section 43 (b) of the businesses Act, 2013]

Preference shares are the shares which carry the subsequent two preferential right:

(1) preferential right to receive divided, to be paid as a fixed amount or an amount calculated at a hard and fast rate, which can either be freed from or subject to tax, before it's paid to equity shareholders, and

(2). Right to receive repayment of capital on the completing of the corporate before that of equity shares.

Classes of preferred stock

Preference shares are often broadly classified as follows:
• about dividend;

•with regard to participation in surplus profit;

• concerning convertibility; and • concerning redemption.

Concerning dividend

Cumulative preferred stock and non-stop cumulative preferred stock. Cumulative preferred stock
Cumulative preferred stock are those preferred stock which carries the proper to receive arrears of dividend before the dividend is paid to the equity shareholders. for instance, a corporation has 10,000; 7% preferred stock of rupee 100 each and dividend for the years ended 31st March 2017 and 2018 has not been paid. the corporate shall pay rupee 2,10,000 as a dividend for 3 years to the preference shareholders before the dividend is paid to the equity shareholders.

Non-cumulative preferred stock

Non-cumulative preferred stock is those preferred stock which doesn't carry the property receive arrears of dividend. within the above example, preference shareholders shall be entitled to receive dividend just for the year ended 31st March 2019, i.e, rupee 70,000 before a dividend is paid to equity shareholders.

About participation in surplus profit
Participating preferred stock and Non-participating preferred stock.

Participating preferred stock

The articles of association of a corporation may provide that after the dividend has been paid to the equity shareholders, holders of preferred stock also will have a right to participate within the remaining profit. The preferred stock carrying this right is called participating preferred stock.

Non-participating preferred stock

Preference shares which don't carry the proper to participate within the profit remaining after equity shareholders are paid dividend are Non-participating preferred stock.

About convertibility

Convertibility preferred stock and non-convertible preferred stock.

Convertible preferred stock

Convertible preferred stock is those preferred stock which carries a right to be converted into equity shares.

Non-convertible preferred stock

Non-convertible preferred stock is those preferred stock which doesn't carry a right to be converted into equity shares.

About redemption

Redeemable preferred stock and irredeemable preferred stock.

Redeemable preferred stock

Redeemable preferred stock is those preferred stock which is redeemable by the corporate at the time specified (not exceeding 20 years from the date of issue) for his or her repayment or earlier. The repayment of the amount is termed as Redemption.

Irredeemable preferred stock

Irredeemable preferred stock is those preferred stock the quantity of which may be returned by the corporate to the holders of such shares when the corporate is aroused.