Owner’s funds are provided by the owners of the business and are known as capital in the case of sole proprietor, partnership, limited liability partnership etc. it is called share capital in the case of incorporated bodies like a company or cooperative society. Owner’s funds also include the profits earned by the business that are reinvested in the business also called as retained earnings, ploughing back of profits or self financing. The main features of these funds are that these are available for a longer duration and need not to be returned during the lifetime of the business. On the basis of these funds, the share of the owners in the management and ownership of the assets decided.
In case of incorporated bodies, the capital is divided into small units called shares. Each share has its own face value. The person holding the share is known as shareholder. Liability of the shareholder is limited to the face value of the share. Shares can be of 2 types:
Equity share capital: it is an important source of finance and is a prerequisite for a company. It provides the base on which the funds are raised from the other sources. Equity share holders participate in the management of the company through their voting rights.They have a claim on all the profits and assets of the company that are left after settling all the claims. Sp they bear the risk of the ownership and also get the reward.
Preference share capital: it represents the funds raised through the issue of preference shares. As compared to the equity shareholders, the preference shareholders have a preferential claim over that held by equity shareholders for dividend and repayment of capital.