Test: Social Responsibilities Of Business And Business Ethics - 2 - Commerce MCQ

A person having the debentures is called debenture holder whereas a person holding the shares is called shareholder. A shareholder or member is the joint owner of a company; but a debenture holder is only a creditor of the company. Shareholders are invited to attend the annual general meeting of the company.

Commercial paper is a commonly used type of unsecured, short-term debt instrument and it maturity usually ranges from 90 days to 1 year.

Disadvantages of raising funds through debentures:
1. No Dilution of control: This is NOT a disadvantage of raising funds through debentures. Debenture holders do not have any voting rights or control over the management of the company.
2. Charge on assets: Debentures are secured by a charge on the assets of the company. This means that if the company fails to repay the debenture holders, they have the right to claim the assets to recover their investment. This can be a disadvantage for the company as it restricts the use of assets for other purposes.
3. Fixed obligation: Debentures carry a fixed obligation of interest payment and repayment of principal amount on maturity. This means that the company has to make regular interest payments and repay the debenture holders on time. This can be a disadvantage if the company is facing financial difficulties or has insufficient cash flow.
Therefore, the correct answer is A: No Dilution of control.

Indian Depository Receipt (IDR) is a financial instrument denominated in Indian Rupees in the form of a depository receipt. The IDR is a specific Indian version of the similar global depository receipts. It is created by a Domestic Depository (custodian of securities registered with the Securities and Exchange Board of India) against the underlying equity of issuing company to enable foreign companies to raise funds from the Indian securities Markets. The foreign company IDRs will deposit shares to an Indian depository. The depository would issue receipts to investors in India against these shares. The benefit of the underlying shares (like bonus, dividends etc.) would accrue to the depository receipt holders in India.

Under the lease agreement, the lessee gets the right to:

• Use the asset for a specific period of time: The lease agreement grants the lessee the right to use the asset for a predetermined period of time, as specified in the agreement. This allows the lessee to benefit from the asset's use without actually owning it.


• Share the profit earned: Typically, the lessee does not share the profit earned from the asset with the lessor. The lessee is only responsible for paying the agreed-upon lease payments or rental fees.


• Vote: Voting rights are not usually granted to the lessee under a lease agreement. Voting rights are typically associated with ownership of an asset, which lies with the lessor in a lease agreement.


• Sell the asset: The lessee does not have the right to sell the asset since they are not the legal owner. Ownership remains with the lessor unless explicitly stated otherwise in the lease agreement.

Therefore, the correct answer is option A: Use the asset for a specific period of time. The lease agreement allows the lessee to utilize the asset for a specified duration without assuming ownership.

Working capital is what fuels every business. And the mantra behind having sufficient funds is to strike the right balance between your assets and your liabilities. 
Trade credit: It’s important to maintain a good rapport with your trade creditors. They provide trade credit in the form of business supplies and equipment that can be paid for at a later date.
Commercial Paper is one of the modes of raising the funds for short term purpose. Commercial Papers fulfil the short-term capital requirement of the Corporate and diversify the source of financing.
One of the most common alternatives businesses for needing liquidity is factoring, which involves a third party, the factor, purchasing corporate account  receivables and providing nearly the full outstanding invoice amount as immediate cash to cover urgent commitments, operational activities and to develop the business.

Preference shares do not carry preferential rights over equity shares regarding:

A: Voting rights

- Preference shares do not typically carry voting rights or have limited voting rights compared to equity shares. Shareholders of preference shares usually do not have the right to vote on matters related to the company's management or decision-making.

B: Payment of dividend

- Preference shares generally have preferential rights when it comes to the payment of dividends. They are entitled to receive a fixed dividend amount before any dividends are distributed to equity shareholders.

C: None of the options

- This option is incorrect because preference shares do have certain preferential rights over equity shares, such as priority in dividend payments.

D: Payment of capital

- Preference shares do not have preferential rights over equity shares when it comes to the repayment of capital. In the event of liquidation or winding up of the company, preference shareholders may have a higher claim on the assets than equity shareholders, but they do not have a preferential right to the repayment of their initial investment capital.
Therefore, the correct answer is A: Voting rights. Preference shares do not carry preferential rights over equity shares regarding voting rights.

Equity is more risky as copared to preference share bacause the dividend is paid to Equity shareholder after the payment of preferece shareholder. secondly in case of winding up of the company the capital is refund to preference shareholder then after to equity shareholder.

Factoring Agreement
The factoring agreement is a financial arrangement between a company (the client) and a third party (the factor) where the factor provides financing by purchasing the client's accounts receivable. The factor then assumes the responsibility of collecting the debt from the client's customers.
Key Points:
- The factor collects the client's debt or accounts receivables. This means that the factor takes over the responsibility of tracking down and collecting payments from the client's customers.
- The factor does not transfer goods from one place to another. This is not a function of the factor in a factoring agreement.
- The factor does not make payments on behalf of the client. The factor's role is to collect payments, not make them.
- The factor does not produce and distribute goods or services. This is the responsibility of the client, not the factor.
In Summary:
The correct answer is A: The factor collects the client's debt or accounts receivables. This is the primary function of a factor in a factoring agreement.

Internal sources of finance are funds found inside the business. For example, profits can be kept back to finance expansion.