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Resource Mobilization — Entrepreneurship STD 11 Commerce — Question

CBSE BoardEnglish MediumSTD 11 CommerceEntrepreneurshipResource Mobilization4 Marks
Question
Discuss the various sources of financing capital through ownership.
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Answer

Basis
Owner's Funds
Borrowed Funds
Meaning
Owners fund is that part of the total investment which is invested by the owner of the business.
It is that amount of borrowed by the enterprise from outsiders for the normal running of the enterprise.
Forms of Organisation:
Sole Tradership
Partnership firm
Joint Stock Company
Capital contributed by the sole trader and profit reinvested by him.
Capital contributed by the partners.
Capital raised by issuing shares plus net reserves and surplus profit
Loan raised by sole trader with or without any security from relatives friends, banks and institutions money lenders.
Loans raised by partner's wife, friends, relatives, money lenders, banks and financial institutions.
Loans raised by secured or unsecured loans from banks and financial institutions and secured and unsecured debentures.
Advantages
  • Right to control over management.
  • It provides risk capital.
  • It decreases obligations of an entrepreneur.
  • It always encourages development of the enterprise.
  • No right to control over management of the enterprise.
  • There is no risk of control over management.
  • Interest is tax deductible expenses.
Disadvantages
  • It will be difficult to raise owner's funds if the profit earning capacity is comparatively.
  • The capital raised through owner's funds always depends on large number of persons, those who are ready to take risk of investing personal savings.
  • Banks and other financial institutions provide loan to the enterprise against some collateral securities.
  • There is a fixed obligation to pay the principal amount and amount of interest.

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