Question

Distinguish between Owned Capital and Borrowed Capital.

Answer 1

Points	Owned Capital	Borrowed Capital
1. Meaning	It is that capital that is contributed by shareholders.	It is that capital that is borrowed from creditors. It is also known as debt capital.
2. Sources	This capital is collected by the issue of equity shares and preference shares, ploughing back of profits (ownership securities).	It is collected by way of the issue of debentures, fixed deposits, loans from banks/financial institutions, etc. (loan, borrowings).
3. Return on Investment	The shareholders get dividends as income on their investment. The rate of dividend is fluctuating, in the case of equity shares but is fixed in the case of preference shares.	The debt capital holders get interested as income on their investment. Interest is paid at a fixed rate.
4. Status	The shareholders are owners of the company.	The debt holders are creditors of the company.
5. Voting right	The equity shareholders enjoy normal voting right at the general meetings.	The creditors do not enjoy voting rights at the general meeting.
6. Repayment of Capital Redemption	The shareholders do not enjoy priority over creditors. They are eligible for repayment of Capital only after making payment to creditors at the time of windings up of the company.	The creditors get priority over the shareholders in case of return of principal amount at the time of winding up of the company.
7. Charge on assets	The shareholders do not have any charge on the assets of the company.	The secured debenture holders have a change on the assets of the company.