suggestions on informative report of public deposits invited by company
Answers
Answer:
Simplicity:
Public deposits are an awfully convenient supply of business finance. No cumbersome legal formalities are concerned. The corporate raising deposits must merely offer a commercial and issue a receipt to every investor.
Economy:
Interest paid on public deposits is less than that paid on debentures and bank loans. Moreover, no underwriting commission, brokerage, etc. must be paid. Interest paid on public deposits is tax deductible that reduces liabilities. Therefore, public deposits area unit a less expensive supply of finance.
No Charge on Assets:
Public deposits are unsecured and, therefore, don’t produce any charge or mortgage on the company’s assets. The corporate will raise loans in future against the safety of its assets.
Flexibility:
Public deposits are raised throughout the season to shop for raw materials in bulk and for different short wants. They’ll become back once the necessity is over. Therefore, public deposits introduce flexibility within the company’s monetary structure.
Commercialism on Equity:
Interest on public deposits is paid at a hard and fast rate. This allows an organization to declare higher rates of dividend to equity shareholders during times of excellent earnings.
No Dilution of Control:
There is no dilution of shareholders’ management as a result of the depositors doesn’t have any selection rights.
Wide Contacts:
Public deposits change an organization to create up contacts with a wider public. These contacts prove useful within the sale of shares and debentures in the future.
Demerits of Public Deposits:
Uncertainty:
Public deposits are an unsure and unreliable supply of finance. The depositors might not respond once economic conditions area unit unsure. Moreover, they will withdraw their deposits whenever they feel shaky regarding the monetary health of the corporate.
Depositors are entitled to withdraw their deposits at any time once giving previous notice to the corporate. Throughout times of economic tightness or distress, the depositors might get terrified and need to withdraw their deposits.
Moreover, if an outsized variety of depositors at the same time withdraw their deposits throughout the slump, the corporate might notice it troublesome to repay a large add directly. Therefore, public deposits are represented as ‘fair weather friends’.
Limited Funds:
A restricted quantity of funds is raised through public deposits because of legal restrictions.
Temporary Finance:
The maturity amount of public deposits is brief. the corporate cannot depend on public deposits for meeting long monetary wants.
Speculation:
As public deposits are raised simply and quickly, an organization is also tempted to lift a lot of funds than it will productively use. it should keep idle cash to satisfy future contingencies. The management of the corporate might fancy over-trading and speculation that exercise harmful effects on the business.
Hindrance to Growth of Capital Market:
Public deposits hamper the expansion of a healthy capital market within the country. Widespread use of public deposits creates a shortage of commercial securities.
restricted Appeal:
Public deposits don’t charm as a mode of investment to daring investors who wish capital gains. Conservative investors may additionally not like these deposits within the absence of correct security.
Unsuitable for brand new Concerns:
New firms lacking in sound credit standing cannot depend on public deposits. Investors don’t wish to deposit cash with such firms.
Invitation and Acceptance of public deposit by companies:
Laws & Rules applicable
Section 58A of the businesses Act 1956
Section 58AA of the Companies. Act 1956
corporations (Acceptance of Deposits) Rules, 1975
Who can accept the public deposit:
A public limited company can accept public deposits. But a private limited co. cannot because of the restriction imposed by the Companies Act (Sec 3)(1)(iii)(d)
Eligibility
No company with an internet owned fund of .s than rupees one large integer shall invite public deposits;”
Net owned Fund” has the same meaning as assigned to it in Reserve bank of India Act, 1934
-Net owned fund suggests that –
a) the mixture of the paid-up equity capital and free reserve. disclosed within the latest record of the corporate when deducting therefrom
accumulated balance of loss,
delayed revenue expenditure,
alternative intangible assets
b) further reduced by the amounts representing –
1) Investment of such company in shares of –
i) its subsidiaries
ii)companies in the same group
iii) all other NBFC’s
2) the value of debentures, bonds, outstanding loans and advances (including hire purchase and lease finance) created to, and deposits with
i) subsidiaries of such corporations
ii) Companies in the same group
to the extent such quantity exceeds ten percent of (a) higher than Amount are often raised,