ECONS 101

STOCK & DEBENTURE

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Raising of Capital:

1. By Prospectus- By giving particulars of the company and its business, is published with application form. Shares are allotted to those who apply.

2. By Offer for Sale- The whole issue of shares is allotted to an issuing house (merchant bank, finance house) which offers them to the public by means of a document known as "Offer for Sale."

3. By Introduction- The company concerned can apply to the stock exchange for sales of its shares. There will be an offer to the public of a new issue of shares through the stock exchange.

4. By a Right Issue- When a Company is established, it may raise further capital by offering the shares concerned to existing members on favourable terms.

5. By Placing- This is a method of issuing securities through an intermediary such as a firm of stock brokers. The intermediary will Endeavour to place issue among its institutional

investors.

Types of Capital:     

1. Authorised Capital- This is also called Nominal or Registered Capital. This is the highest amount of capital stipulated in the Memorandum of Association considered as enough to set up and run a company.

2. Issued Capital- This represents the part of the authorised capital given out to members of the public for subscription. It is after the issued capital is fully subscribed that it can now be referred to as Subscribed Capital.

3. Called up Capital- This is the portion of the capital which the management considers good enough to be called up on the issued shares.

4. Reserved Capital- This represents the portion of the capital not called up, which the directors have assumed to be incapable of being called up any time. The Uncalled up Capital is a liability to the company and is set aside for future expansion.

Stocks can be defined as the bundle of shares or mass of capital which can be transferred in fractional amounts. Stocks are always fully paid, e.g. Stocks can be quoted per N100 nominal value. It is a collection of Shares into a bundle. Stocks are not issued but converted from shares issued.

Differences Between Shares and Stocks:

SHARES	STOCKS
1. Unit of Capital is Transferable only in their entirety.	Mass of Capital, any of which is Transferable.
2. Shares are issued.	Stocks are converted from shares issued.
3. They are numbered serially.	Stocks are not numbered serially.
4. Shares may be partly paid.	Stocks are always fully paid.

Debenture may be defined as a bond, acknowledging a loan, generally under the Company's seal and bearing a fixed rate of interest. It is usually giving security for the repayment of the loan and the payment of the interest. In other words, Debenture is a document setting out the terms of a loan to a company, i.e. a Certificate of Indebtedness. Holders of Debenture cannot  share from the profit of the company. The Company Act defines debentures as " A Written Acknowledgement of Indebtedness by the Company, setting out the terms and conditions of the indebtedness, and includes debenture stock, bonds and any other securities of a company, whether consulting a charge on the assets of the company or not."

Types of Debentures:

1. Mortgage Debentures- are issued on the security of the Company's assets. It gives a charge upon the whole or part of the company' assets upon liquidation.

2. Simple or Naked Debenture- Where there is no charge created on the company's property or assets, the debenture is described as naked or simple. In this case, there is no security for the debenture.

3. Secured Debenture- is the type whose repayment is guaranteed through a collateral security tendered by the borrower.

4. Redeemable Debenture- is repayable at a date which has been fixed or determined. A Company may issue debentures which are liable to be redeemed.

5. Irredeemable Debenture- is repayable only in the event of some specified contingency, such as winding up of the company. It cannot be cashed at any time and it is bought solely for interest payments.

Differences Between a Debenture and Shares:

DEBENTURE	SHARE
1. A Debenture is a Certificate of Indebtedness.	A Share is a unit of Capital.
2. It is a Loan.	It is not a Loan.
3. Holder is a Creditor.	Holder is one of the owners.
4. Holder receives Interest.	Holder receives Dividend.
5. Interest is Credited to Profit and Loss Account.	Dividend is Credited to Appropriation Account.
6. The Holder receives Interest before Profit Distribution.	Holder will wait for the Distribution of Profit.
7. Entitled to Fixed, Regular and Predetermined Payment of Interest.	Entitled to Dividends that may vary with the Profits.

Differences Between Partnership and Public Limited Liability Company:

Features	Partnership	Public Limited Liability Company
1. Raising of Capital	This is done through Member's Contribution.	This can be done through Issuance of Shares to the Public.
2. Auditing	No Audit of Account.	Law Prescribes an Annual Audit and Publishing of Accounts.
3. Ownership	It is not separated from Management as it is owned and controlled by the partners.	Ownership is separated from Management as it is owned by Shareholders and controlled by Board of Directors.
4. Legal Entity	It has no Separate Legal Entity.	It has Separate and Distinct Legal Entity.
5. Membership	It has a Minimum of 2 and Maximum of 20.	It has a Minimum of 7 and No Maximum Limit.
6. Perpetuity	Death or Withdrawal of a Partner can bring it to an end.	Company enjoys Perpetual Existence.
7. Liability	It has unlimited Liability.	It has Limited Liability.
8. Formation	Rights are regulated by deeds of Partnership as they are not Incorporated.	Governed by Memorandum of Association as they are Incorporated.

NOTE: PARTS OF THIS POST WERE CULLED FROM TONAD ESSENTIAL ECONOMICS FOR SENIOR SECONDARY SCHOOLS BY C.E ANDE.  WE AT EDU-MADE-EASY RESPECT THIS CRAFT TOO MUCH TO DENY ITS ORIGIN. THANK YOU

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