Friday, April 17, 2009

HOW A CORPORATION CAN RAISE CAPITAL ?(3)

Common stocks Issuing bonds and issuing common stocks are opposite methods of financing.The common stockholder is providing "equity" capital.He shares in profits and in control of business decisions,but he must also share in losses.His is a more risky venture,because he can never receive any dividends until the fixed charges owed to the bondholder are paid off.The bondholder gets a limited but steadier income.
Unless the corporation is bankrupt or in danger of being so,the bondholder ordinarily has no legal control over the decisions of the business;but a wise management will take care to stay on good terms with all sources of future capital.

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