ANALYSIS ABOUT THE OPTION 4th
(That the company seeks loan capital by way of debentures secured by means of a combination of fixed and floating charges on the various company assets.)
The existing members are keen that the chosen option should maximize their continued control over the affairs of the company and minimize public scrutiny.
In relation to the above)
Advantages of these Options
- Here company wants to have the full control over the company and mimimum scrutiny of the public and for the same company want to raise the capital through the debt it has to pay fixed interest on to it and that too on an agreed time.
- No need to share the part of the profit either in the form of growth or dividend or retained earning or bonus etc. just fixed cost of capital is required to pay in the form of interest. If Compay issues debentures then it will avail the benefit of the following merits of debentures ::
a) Raising funds without allowing control over the company:
Debenture holders have no right either to vote or take part in the management of the company.
b) Reliable source of long term finance:
Since debentures are ordinarily issued for a fixed period, the company can make the best use of the money. It helps long term planning.
c) Tax Benefits:
Interest paid on debentures is treated as an expense and is charged to the profits of the company. The company thus saves incometax.
d) Investors’ Safety:
Debentures are mostly secured. On winding up of the company, they are repayable before any payment is made to the shareholders. Interest on debentures is payable irrespective of profit or loss.