Deferred Tax Payment

Deferred tax payment is another source of short term fund. It is similar in character to trade credit and the credit is supplied by the tax authorities. This is created by the interval that elapses between the earning of the profits by the company and the payment of the taxes due. No interest is charged for the credit but the tax authorities would like to collect the payment earlier and the company is under no obligation to pay until the due date. In order to encourage early returns the tax authorities offer tax reserve certificates. A company can purchase these certificates when it likes, earn interest on them and, when the time for payment of the tax is due, surrender the certificate to discharge its tax liabilities.

If the interest offered on the certificate is higher than the companies can earn themselves by their own investment of funds, then it will be sensible to purchase the certificate. Sources of Finance Long term source Ordinary Share Capital:

Ordinary share capital is the foundation of any capital structure. The ordinary shareholders are the risk bearers. The main characteristics of ordinary share capital are:

Source-Pixabay

(a) Legally, they must have a nominal value e.g. 50k or N1.00 shares. The nominal value is usually the price at which the shares are first issued.

(b) Ordinary shares may be issued at par i.e. their nominal value or, on rare and unusual circumstance, at a price less than their nominal value, at a discount, or at premium --- that is at a price over and above their nominal value.

(c) At times, a company may issue bonus shares to existing shareholders in proportion to the shares held. Note that bonus shares are not a source of finance as they are not issued for cash. It is a book- keeping operation of distributing reserves to existing shareholders.

(d) Shares of quoted companies change hands frequently. A company should therefore maintain up to date register of shareholders.

(e) The income of the ordinary shareholders is the residual (i.e. after prior claims have been met) profit of the company. This income is either paid to them in form of dividend or retained in the business for expansion.

(f) By law, companies are barred from repaying capital to its ordinary shareholders. Thus the only way they can withdraw their capital as individual is by selling the shares in the open market. In the event of winding up, ordinary shareholders are entitled to the whole of the residual assets, if there are any.