SP important distinguish between: Secretarial Practice HSC Board Exam 2022

Fixed Capital

Working Capital

1.   Meaning EANING
Fixed capital is also called long-term capital. It is invested in fixed assets like land and building, plant and machinery, etc.

Working capital is also called circulating capital (operating expenses). The capital of a business is used for day-to-day operations. it is calculated as the current assets minus the current liabilities.

2.   Purpose
Fixed capital is also called long-term capital. It is invested in fixed assets like land and building, plant and machinery, etc.

It is also called circulating capital (operating expenses). The capital of a business is used for day-to-day trading operations, it is calculated as the current assets minus the current liabilities.

3.   Sources
Fixed capital is obtained by the Issue of Shares, Issue of debentures, Term loans, etc.

Working capital is obtained by the Short term loans, Overdraft, Dealer advances, etc.

4.   Objective of Investor
The investor invests money in fixed capital to make a profit in the future.

The investor invests money in working capital for getting immediate returns in a short period.

5.   Risk
Investment in fixed capital involved high risk.

Investment in working capital involved less risk.

6.   Period of Capital Needs
Fixed capital is used for more than five years or more.

Working capital is used for a shorter period of up to one year.

7.   Decision Making Authority
In the case of fixed capital investment, the decisions are made by the top level of management.

In the case of working capital investment, the decision is made by middle and lower levels of management.

Equity Shares

Preference Shares

1.   Meaning
It is also known as an ordinary share.  Equity shareholders do not enjoy any preference regards dividend payment and repayment of capital.

Shares that carry preferential rights are known as Preference shares. Preference shareholders enjoy preference regards dividend payment and repayment of capital.

2.   Rate of dividend
The rate of dividend in Equity share is not fixed. The dividend is given at a fluctuating rate depending upon the profit of the company to Equity shareholders.

The rate of dividend in the Preference share is fixed. Preference shareholders get a fixed dividend rate.

3.   Refund of capital 
Equity share is refunded only after refund of preference share capital

Preference shareholder has prior right to refund the capital over equity capital

4.   Nature of Capital
It is permanent capital. It is known as ‘Risk Capital’.

Preference share capital is ‘safe capital’ with giving stable returns.

5.   Nature of Investor          
Investors who are ready to take the risk to invest in equity shares.

The investors, who are not ready to take the risk, invest in preference shares.

6.   Convertibility
Equity Share is not convertible

A Preference share is convertible

7.   Redeem ability
It is not redeemable

It is redeemable

8.   Voting Right
Equity shareholders enjoy voting right on the general meeting

Preference shareholders do not enjoy normal voting right.

9.   Risk
Equity shares are subject to higher risk because of the fluctuating rate of dividends and no guarantee to the repayment of capital

Preference shares are subject to less risk, because of the fixed dividend rate and preferential to the repayment of capital

Share

Debenture

1.   Meaning:
It is the smallest unit in the total share capital of the Company.

Debentures are an acknowledgment of debt issued by a company under its common seal.

2.   Nature:
Share capital is owned capital and it is permanent capital.

Debenture capital is borrowed capital and it is a temporary capital.

3.   Status
Share capital is ownership capital. A shareholder is the owner of the company.

Debenture capital is borrowed /loan capital. a debenture holder is only a creditor of the company.

4.   Voting rights
A shareholder has a right to vote

 The debenture holder doesn’t enjoy voting right.

5.   Return on investment:
Shareholders receive the dividend as a return on investment.

 Debenture holders receive interest as a return on investment.

6.   Convertibility
Shares can not be converted into a debenture

 Debenture can be converted into shares.

7.   Security:
Share capital is unsecured capital. No security is offered to the shareholders.

Debenture capital being loan capital is secured against assets of the concerned company.

8.   Types:
Shares are classified into Equity share and Preference share

     The debenture is classified as
a)    Registered debenture
b)    Bearer debentures
c)    Secured debentures
d)    Unsecured debentures

Transfer of Shares

Transmission of Shares

1.   Meaning:
Transfer of shares refers to voluntarily or deliberately transferring shares by one party to another.

Transmission of shares refers to the transfer of ownership to his legal representative because of the operation of law at the time of death or insolvency, etc. of the members.

2.   When done:
It is done when the member wants to sell his shares or give his shares as a gift.

Transmission of share is done when the member dies or becomes insolvent or insane.

3.   Nature of Action
It is a voluntary or deliberate action taken by the member.

It is an involuntary action due to Insolvency or death, etc. It is due to the operation of law.

4.   Parties involved
Two parties involved in the transfer of share i.e. transferor and transferee.

One party involved in the transmission of share i.e. legal or personal representative, the nominee of the member just in case of death or insolvency.

5.   Instrument of transfer:
Transfer requires an Instrument of transfer. It’s a contract between the transferor (person who wants to transfer) and transferee (a person to whom a transfer is made)

 Transmission of shares does not require Instrument.

6.   Initiated by
The transferor initiates the transfer process.

The legal representative initiates the process of transmission.

7.   Consideration
Transfer of shares is done often by the member to receive some consideration (money) i.e. the buyer has to pay for the shares. (Except given as a gift.)

No consideration is involved here. The person who is entitled (legal representative) or official receiver need not pay for the shares.

8.   Liability
The liability of the transferor comes to an end after the shares are transferred.

Original liability of shares continues to exist just in case of transmission of shares.

9.   Stamp Duty
Stamp duty payable on the market value of shares.

In the case of Transmission of share, No need to pay.

Interim Dividend

Final Dividend

1.   Meaning:
The interim dividend is that the dividend that’s declared and paid between two Annual General Meetings (AGMs) of a company during the accounting year.

The final dividend is that the dividend that’s declared in Annual General Meetings (AGMs) and paid annually after the close of the financial year.

2.   Who Declares:
The interim dividend is decided and declared by the Board of Directors in the Board Meeting when the company makes a profit.

It is decided and recommended by the Board of Directors in the Annual General Meeting and declared by the shareholders in the AGM (Annual General Meetings).

3.   Authorization
It can be declared only if the Articles of Association permit its declaration.

It is declaration does not need authorization by the Articles of Association.

4.   When Declared
It is declared between two Annual General Meetings of the company.

It is declared at the Annual General Meeting of the company

5.   Rate of Dividend
The rate of the Interim dividend is lower than the final dividend.

The rate of the final dividend is always higher than the Interim Dividend.

6.   Source
It is declared out of profits of the current accounting year.

It is declared from different sources like; current year’s profits, free reserves, capital profits, Money provided by Govt. for dividends, etc.

7.   Accounting Aspect
It is declared before the preparation of the final accounts of the company

It is declared only after the accounts of the year are prepared and finalized.

Money Market

Capital Market

1.   Meaning:
It is a component of the financial market where short-term borrowing takes place.

It is a component of the financial market where long-term borrowings take place.

2.   Time period
In the money market, the instruments traded have a maturity period of one year or less than one year.

In the capital market, the instruments traded have a maturity period of more than one year.

3.   Instruments
Certificate of deposits, Repurchase agreements, Commercial paper, Treasury bills, etc. are the instruments traded in the money market.

Stocks, Shares, Debentures, Bonds, Securities of the government are the instrument of the capital market.

4.   Purpose of borrowing
Funds are borrowed to meet working capital requirements or for small investments.

Long-term funds are required to establish a new business, expand or diversify the business, or purchase fixed assets.

5.   Institutions
Participants in the market are Central banks, Commercial banks, Acceptance houses, Non-bank financial institutions, Bill brokers, etc.

Stock exchanges, Commercial banks, and Non-bank institutions, financial intermediaries, etc. are the participants in the market.

6.   Risk
In the money market, the risk factor is very less because the maturity period of the instruments is less than one year.

In The capital market, the risk is more as compared to in the money market. The reason behind this is the instruments have a long maturity period.

7.   Return on Investment
Return on investment in the money market is less as they are highly liquid and safe.

Return on investment in the capital market is comparatively high as they are riskier.

8.   Role in Economy
This market increases the liquidity of
Funds in the economy.

This market helps in the mobilization of savings in the economy.

Primary Market

Secondary Market

1.   Meaning:
The issue of new shares by the company is done in the primary market.

The securities issued earlier are traded in the secondary market.

2.   Mode of Investment
Direct investment in the securities. Securities are acquired directly from the company.

Indirect investment as the securities are acquired from other stakeholders.

3.   Parties in action
The parties dealing in this market are companies and investors.

The parties dealing in this market are only investors.

4.   Intermediary
The underwriters are the intermediaries.

The security brokers are the intermediaries.

5.   Value of security
The price of the security in the primary market is fixed as it is decided by the company.

The price of the security is fluctuating, depending on the demand and supply conditions in the market.