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Ownership Capital

Ownership capital means the funds contributed by the owners (or shareholders and the profits reinvested in the business. The characteristics of owners’ capital are:

(i)    Permanent Source. It is a source of permanent capital tot eh company.

Sources of Finance Based on Ownership

(ii)    Risk Capital. It provides risk capital to the business.

(iii)    Control Over Management. The owners or shareholders have control over the management of the business. The managers have to follow the policies laid down by the owners.

(iv)    Return. Dividend is to be distributed if there are sufficient profits. The profits reinvested in the business belong to the shareholders or owners.

(v)    Security. There is no need of security of fixed assets to raise ownership capital.

The advantages of owned capital are as under:

(i)    Owned capital is permanent in nature as there is no need to refund the owned funds.
(ii)    There is no need to mortgage company’s assets for raising capital.
(iii)    It does not involve payment of any interest at a fixed rate.
(iv)    Control of the company rests with the owners or shareholders.
(v)    Ownership capital provides risk capital. It also forms the basis of raising borrowed capital.
(vi)    A company can raise huge capital through the issue of shares.

The limitations of owned capital are as under:

(i)    The owned funds may not be fully utilized and thus remain idle.
(ii)    The owned funds can’t be refunded to shareholder if there are surplus if there are surplus funds.
(iii)    There are generally a large number of shareholders, but control of the company rests only with a few influential shareholders.

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