Question

Without finance, organizations might find it difficult to operate. Identify the forms of business organizations and explain how each of them raises its finance.

Answer 1

If business is the body, finance is the heart. Finance being the prime input and prime objective of any business organisation can be said as the most vital element of business after the idea of business. Finance is the resource which transform an idea into business.

There are three forms of business:

·         Sole proprietor

·         Partnership

·         Corporates

Sole proprietor can source its finance through three modes only i.e. either through his own wealth i.e. capital or through public financial institutes such as bank, as debt or a loan from any legal person.

Partnership firms can source their finance from the partners in form of partner’s contribution, loans from partners, individuals and other financing institutes.

Corporates being the most organised side of the industry can source their finance from various sources such as:

·         Issue of equity share

·         Issue of preference shares

·         Issue of debentures

·         Issue of notes

·         Loans from financial institutes

·         Other forms of loans.