Revision Notes- Resource Mobilization | Entrepreneurship Class 12 - Commerce PDF Download

Stock Market – Raising Funds

• ‘Production’, ‘Marketing’, and ‘Financing’, deemed as the most important factors for any business survival, rates “Financing” as the first because nothing can be done without money. Thus, the most critical element for success in business is ‘Finance’.
• The role of transferring financial resources from the surplus units to the deficit units is what is referred to as “Financial Intermediation”. Capital markets play a very vital role of a financial intermediary.
• A capital market may be defined as an organized mechanism meant for effective and smooth transfer of money, capital or financial resources from the investors to the entrepreneurs.
• Types of markets available under Capital Market: 
  1. Primary Market, 
  2. Secondary Market.
• The market place for new shares is called Primary Market.
• The place where formerly issued securities are traded is known as Secondary Market.
• Methods of flotation of new issues: An entrepreneur can raise the required capital in the primary market by the following methods:
  1. Public issue 
  2. Rights issue
  3. Private placement
  4. Offer to the employees
• According to Securities Contracts (Regulation) Act, 1956, “A stock exchange means any body of individuals, whether incorporated or not, constituted for the purpose of assisting, regulating or controlling the business of buying and selling or dealing in securities.”
• Features of stock exchange:
  1. Association of persons
  2. Recognition from central government
  3. Market for securities
  4. Deals in second hand securities
  5. Regulates trade in securities
  6. Allow dealings only in listed securities
  7. Transactions effected only through members
  8. Working as per rules
  9. Specific location
  10. Financial barometers
• Functions of a stock exchange:
  1. Continuous and ready market for securities
  2. Facilitates evaluation of securities
  3. Checks on brokers
  4. Provides safety and security in dealings
  5. Regulates company management
  6. Intensifying capital formation
  7. Facilitates raising of new capital
  8. Facilitates public borrowing
  9. Facilitates healthy speculation
  10. Serves as economic barometer
  11. Facilitates bank lending
• Importance of a stock exchange:
  1. From the viewpoint of investors
     (i) Dissemination of useful information
     (ii) Ready market
     (iii) Investors’ interests protected
     (iv) Genuine guidance about the securities listed
     (v) Barriers of distance removed
     (vi) Knowledge of profit or loss on investments
  2. From the viewpoint of entrepreneurs /companies
     (i) Recognition
     (ii) Wide market
     (iii) Higher share values
  3. From the viewpoint of society
     (i) Rapid capital formation
     (ii) Economic development
     (iii) National projects
• The Securities and Exchange Board of India (frequently abbreviated SEBI) is the regulator for the securities market in India. It was established on 12 April, 1992 through the SEBI Act, 1992.
• Initially SEBI was a non–statutory body without any statutory power. However in the year of 1995, SEBI was given additional statutory powers by the Government of India through an amendment to the Securities and Exchange Board of India Act, 1992.
• In April, 1998 the SEBI was constituted as the regulator of capital markets in India under a resolution of the Government of India.
• Powers:
  1. To approve by-laws of stock exchanges, SEBI.
  2. To enquire the stock exchange to amend their by-laws.
  3. To inspect the books of accounts and call for periodical returns from recognized stock exchanges.
  4. To inspect the books of accounts of financial intermediaries.
  5. To compel certain companies to list their shares in one or more stocks exchanges.
  6. To levy fees and other charges on the intermediaries for performing its functions.
  7. To grant license to any person for the purpose of dealing in certain areas.
  8. To delegate powers exercisable by it.
  9. To prosecute and judge directly the violation of certain provisions of the Companies Act.
  10. To power to impose monetary penalties.

Angel Investors and Venture Capital Funds

• Business angel or informal investor or an angel investor, is an affluent individual who provides capital for a business start-up and early stage companies having a high-risk, high-return matrix usually in exchange for convertible debt or ownership equity.
• Venture capital is a type of private equity capital provided as seed funding to early-stage, high potential, high risk, growth up companies/entrepreneurs who lack the necessary experience and funds to give shape to their ideas.
• Venture capital is an equity based investment in a growth-oriented small to medium business to enable the investors to accomplish objectives, in return for minority shareholding in the business or the irrevocable right to acquire.
• A venture capitalist provides guidance to company and is a business partner sharing both risk and reward.
• Features of venture capital:
  1. It is basically equity finance in relatively new companies.
  2. It is long-term investment in growth-oriented small or medium firms.
  3. Venture capitalist not only provide capital but also business skills to investee firms.
  4. It involves high risk-return spectrum.
  5. It is a subset of private equity.
  6. The venture capital institutions have a continuous involvement in the business after making the investment.
  7. Such institutions disinvest the holdings either to the promoters or in the market.