Business Finance - SOURC ES OF FUNDS AND CAPITAL STRUCTURE Research Paper

Business Finance - SOURC ES OF FUNDS AND CAPITAL STRUCTURE - Research Paper Example In this type of funding, the hire purchaser or hirer receives the property or good instantaneously after signing the purchase agreement. However, the ownership gets transferred fully after finishing the last instalment payment. Leasing The procedure of lease financing includes procurement of various assets by means of taking lease. Lease means one contract in which the ownership, the funding linked with the asset or the equipment and the risk taking are totally separated and shared by two or greater than two parties. In case of lease financing the lessor finances and the lessee accepts the risk, involved by utilization of the asset or equipment taken on lease, whereas a third party actually owns it. Another alternative way is that the lessor would own as well as finance the asset or equipment, whereas the lessee would enjoy using it along with bearing certain amount of risk. This type of transaction includes commercial arrangement in which the equipment owner possesses the right to t he asset or equipment user for utilising it in return of fixed rental. Long term sources of funds Long term sources of raising funds mainly include those sources which are needed for longer span of time. These types of financing activities are mainly associated with fund expansion projects. These projects are complex in nature and need huge sources for the funding activities. It is because of this reason that the organizations use long term sources for raising the funds. In many cases, the organizations do not make use of one single source of financing. The main long term sources of raising funds are: Equity Shares The equity shares form an essential part while considering the ownership of any particular company (Walter 3). When any business decides to expand its operation, it issues high number of shares, in order to raise the fund needed for effective implementation of the desired plan. This type of investment is an important source of raising the funds and it provides the investo rs with a certain portion of company’s profit along with taking part in taking company’s decisions (Hafer and Hein 15). This strategy of rising the funding by an organization out-performs all other strategies (Fontanills and Gentile 1; Rosen 8). When the earnings of a company are high, the stock prices increase resulting in higher profitability for the company as well as the investors. If the company originates from growing market then raising of fund by issuing its equity shares turns out to be highly profitable. However, when there is economic downturn the shares of the companies remain at high risk in spite of their high brand value and strong management. Preference shares Issue of preference shares is another way of raising fund where the dividends are payable on the shares at the fixed rate and paid only in case of earning of profit by them. Thus, there remains no obligatory burden for the company (â€Å"Methods of Raising Capital†). But these shares do not possess voting rights. Debentures The companies have power of