the shareholders of a company encompasses the following factors Management may

The shareholders of a company encompasses the

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the shareholders of a company encompasses the following factors: Management may raise finance for a company by taking out long or medium-term loans. They might well be taking risky investment decisions using external money to finance them. Investors who provide debts finance may rely on the company’s management to generate cash inflows to repay the interest on time, eventually to repay loans. The secure loan will be consider by the long-term payables, e.g. fixed charged over asset. Debentures also often subject to certain restrictive covenants, which restrict the company’s rights to borrow more money until the debentures have been paid. If a company is unable to pay what it owes its payables, the payables may decide to exercise their security or to apply for the company to be wound up . The money borrow from long-term payables will be invested to earn profits so that will provide extra dividends or retained profits for the shareholders of the company. The shareholders expected to increase their wealth using payables’ money. (c ) Shareholders, managers and government The government does not have direct interest in companies. However, the government has a strong indirect interest in companies’ affairs. Taxation The government may raises taxes fo r sales, profits and on shareholders’ dividend. The government also expects the companies act as tax collector for income tax. The tax structure might influence investors’ preference either capital growth or dividends. Encouraging new investments The government may provide funds for investment projects. By offering the tax incentives may encourage the investment. Encouraging a wider spread of share ownership In UK, the government may encourage more private individuals to become company shareholders by attractive privatisation issues (e.g.
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___________________________________________________________________________________________________________________ Page 6 of 21 IPK COLLEGE 1664, JALAN KULIM, 14202 BUKIT MERTAJAM, PENANG TEL : 012-5203212 / 0125113212 / 04-5512588 Subject: Financial Management (DFM1) Prepared by Susan Lim Email : [email protected] electricity, gas and telecommunications industries) and tax incentives to encourage individuals to invest in shares. Legislation The government will influence companies , relationship between shareholders, payables, management, employees and general public, through legislation, including Companies Act, legislation on employment, health and safety legislation, legislation on consumer protection and consumer rights and environmental legislation. Economic policy Government’s economic policy will influence the business activity. For example, exchange rate policy will have implications for the revenue of exporting firms and for the purchase costs of importing firms. Policies on economic growth , inflation , employment , interest rates are all relevant to business activities.
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