The effect of under Capitalisation. The remedies for under Capitalisation.
Effect of under Capitalisation:- Under Capitalisation has both good and adverse effects on various interested groups in the company. They are analysed below:- A. Advantages to the shareholders:- (1) Higher dividend: Due to higher earning of the company the shareholders regularly receive higher dividends on their investments. (2) Capital gain: The shareholders of under capitalised company also avail capital gains because the market value of share increase very rapidly. (3) Easy loan: Since the shares of an under capitalised company have great value as collateral security, the shareholders can easily obtain loans against the security of such shares. B. Advantages to society:- (1) General welfare: The entire society is benefited with higher earnings of an under capitalised company. (2) Employee advantages: The employees get higher wages, boners and better amenities due to increased earnings. (3) More production: Under Capitalisation encourages the establishment of new companies re