Borrowed capital

Secretarial Practice

1. Borrowed Capital Mr. Atul Abhiman Agalawe (M. Com, B. Ed, D.B.M)

2. Borrowed Capital It consists of the amount raised by way of loans or credit. It creates obligation on the company regarding payment of return and repayment of capital. It is a temporary capital. They are creditors of the organization.

3. Debenture The debenture has come from Latin word ‘debare’ which means to ‘owe’ It is a medium- to long-term debt instrument used by large companies to borrow money, at a fixed rate of interest.

4. Definitions “Debenture includes—debenture stock, bonds and any other securities of a company, whether constituting a charge on the assets of the company or not.” ____Sec 2 (12) of Companies Act 1956 “ Debenture ” includes debenture stock , bonds or any other instrument of a company evidencing a debt, whether constituting a charge on the assets of the company or not. ____Sec 2 (30) of Companies Act 2013 “Debenture is a document given by the company as evidence of debt to holder usually arising out of loan and most commonly secured by charge.” ______ Tophon “Debenture is an instrument under seal evidencing debt, the essence of it being admission of indebtness.” _____ Palmar “Debenture is a document which either creates a debt or acknowledges it.” —Justice Whity “A debenture is an instrument issued by the company under its common seal acknowledging a debt and setting forth the terms under which it is issued and is to be paid.” —Naidu and Datta

5. Features Promise Face Value Time of Repayment Interest Assurance of repayment Parties: Company Trustee Debenture holder Rights of Debenture holders Terms of Issue Security Listing Trading on equity Types

6. Bonds Like debenture, bonds are popular in America for the long-term industrial finance. A bond is a debt investment in which an investor loans money to an entity (typically corporate or governmental) which borrows the funds for a defined period of time at a variable or fixed interest rate. A bond is an instrument of indebtedness of the bond issuer to the holders. It is a debt security, under which the issuer owes the holders a debt and, depending on the terms of the bond , is obliged to pay them interest (the coupon) and/or to repay the principal at a later date, termed the maturity date. “A bond is an interest bearing certificate issued by a government or business firm, promising to pay the holder a specific sum at a s pecified date.” ___Webster Dictionary A written and signed promise to pay a certain sum of money on a certain date, or on fulfillment of a specified condition. All documented contracts and loan agreements are bonds. ____Business Dictionary

7. Features Contract Nature of Finance Status of Investor Return on Bonds Repayment Guarantee by Government Tax Benefits Parties: Corporation Bondholder Trustee

8. Loans from Financial Institutions A financial institution is an establishment that conducts financial transactions such as investments, loans and deposits. Almost everyone deals with financial institutions on a regular basis. Everything from depositing money to taking out loans and exchanging currencies must be done through financial institutions . It refer to those institutions which provide financial assistance.

9. Banking Financial Institutions These institutions accepts the deposits from the public repayable on demand and lend the money or investment. E.g. Commercial Banks, Cooperative Banks Banks provide long term loans

10. Classification of Non-Banking Financial Institutions Development Banks: IDBI, IFCI, ICICI, SIDBI, IRBI Financial Institutions: RCTC, TDICI, TFCI Investment Institutions: LIC, UTI, GIC State Level Institutions: SFC, SIDC

11. Functions of Financial Institutions Subscription of securities Granting Loans Guaranteeing Loans Guaranteeing Foreign Currency Loans Guaranteeing Credit Purchase of Capital Goods Other Functions: Underwriting securities Acting as Agent Issue Letter of Credit Discounting the Bills Provide venture capital, Lease Finance Undertaking Promotional Activities Guidance for Management and Business

12. Importance and Need To Develop sound capital market To mobilize financial resources Capital formation Planned Economy Financing Small Business Foreign exchange need Govt. Taxation Policy Rate of Interest