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Public Financing

Public financing means raising funds for investment in the business form the public. It s sought only when the investments are high and could not be met by persons finances and governmental support systems. This facilitates systems where the capital investments are high or the enterprise goes through a process of expansion and is in need of a large finance.

Public financing is usually raised through shares and debentures. Shres provide ownership right to the investors. In many cases, debentures are allowed to be converted into shares by the company after a certain period of time. Public financing provides the image and credibility to the company. The securities owned by the shareholders are usually transferable after a period of time and the marketability of the securities provides the value of the company. The marketability of the securities mainly depends upon the performance of the company and the goodwill it enjoys in the market. Once a company has gone public, certain roles and regulations under the Companies Act as well as under the rules and regulations of the Securities and Exchange Board of India govern it. The company is liable to provide its periodic audited accounts and also frequent report on the performance to shareholders. Thus, company is subject to public scrutiny if it raises fund from the public.

Public financing has certain limitations which are as follows:

(i)    It is not preferable when the requirement of finance is less/small.
(ii)    It is not suitable during the period of depression as this source of finance is risky.
(iii)    It is a costly source of fiancé compared to bank credit.
(iv)    Many legal formalities are required if public financing is to be used. Many provisions of various Acts are to be fulfilled.

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