Certificate of commencement of business:A private limited company can commence business on
receipt of certificate of incorporation. A public company has, however, to wait to commence business
till a certificate of commencement of business is received from the registrar of the joint stock
companies. The certificate of commencement of business is granted on fulfilling the following a few
other requirements:-
1) Where prospectus has been issued inviting the public on subscribe for shares.
2) Shares payable in cash have been allotted to the amount of minimum subscription.
3) Every director of the company has paid the full amount of the shares payable in cash.
4) There is no money liable to be paid to applicants for shares which have been offered for
subscription.
5) A statutory declaration by the chief executive or one of the directors and the security that the
aforesaid conditions have been compared with.
The registrar on being fully satisfied that:
1- The verified declaration has been filed.
2- All other requirements of the ordinance have been compiled with.
Will issue a certificate called, "certificate of commencement of business". On receipt of this certificate
a company is entitled to commence business. A company which has not issued a prospectus shall have
to file a statement in lieu of prospectus for getting the certificate of commencement of business.
Credit rationing refers to the situation where lenders limit the supply of additional credit to borrowers
who demand funds, even if the latter are willing to pay higher interest rates. It is an example of
market imperfection, or market failure, as the price mechanism fails to bring about equilibrium in the
market.
Types of Capital Rationing – Hard and Soft
Capital rationing is the strategy of picking up the most profitable projects to invest the available funds.
Hard capital rationing and soft capital rationing are two different types of capital rationing practices
applied during capital restrictions faced by a company in its capital budgeting process.In efficient
capital markets, a company’s aim is to maximize the shareholder’s wealth and its value by investing in
all profitable projects. However, in real life, a company may realize that the internal and the external
funds available for new investments may be limited.
Capital rationing is a strategy used by organizations attempting to limit the costs of their own
investments. Typically, a company engaging in capital rationing has made unsuccessful investments
of capital in the recent past and would like to raise the return on those investments prior to engaging
in new business.
Why Ration Capital
The main goal of capital rationing is to protect a company from over-investing its assets. If this were
to occur, the company might continue to see low return on investment and even face a compromised
financial position. Further, this can cause a company's stock to drop.
Definition of Hard and Soft Capital Rationing
There are two situations which may lead to capital rationing, namely hard and soft capital rationing.
Hard capital rationing or “external” rationing occurs when the company faces problems in raising
funds in the external equity markets. This can lead to the shortage of capital to finance the new
projects in the company.
