Understanding the Characteristics of Share Capital in Company Formation
Explore the key features and types of companies, public and private distinctions, and the significance of share capital. Learn about the legal entity, limited liability, perpetual succession, and more in company structures.
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Abhipedia Accountancy SHARE CAPITAL By Niharika Walia POWERED BY ABHIMANU IAS, MAIL AT INFO@ ABHIMANU.COM 1
Abhipedia COMPANY A company form of organisation is the third stage in the evolution of forms of organisation. Its capital is contributed by a large number of persons called shareholders who are the real owners of the company. 1. In fact, all the affairs of the company are governed by the provisions of the Companies Act, 2013. 2. Earlier it was governed by The Companies Act, 1956. 3. According to Chief Justice Marshal, a company is a person, artificial, invisible, intangible and existing only in the eyes of law. Being a mere creation of law, it possesses only those properties which the charter of its creation confers upon it, either expressly or as incidental to its very existence . 4. A company usually raises its capital in the form of shares (called share capital) and debentures (debt capital.) POWERED BY ABHIMANU IAS , MAIL AT INFO@ ABHIMANU.COM.. 2
Abhipedia Features of a Company Company has certain special features which distinguish it from the other forms of organisation. These are as follows: Body Corporate: Separate Legal Entity: Limited Liability: Perpetual Succession: Common Seal: Transferability of Shares: May Sue or be Sued: POWERED BY ABHIMANU IAS , MAIL AT INFO@ ABHIMANU.COM.. 3
Abhipedia Kinds of Companies Kinds of Companies On the basis of number of members On the basis of formation On the basis of liability Control of Ownership Companies Limited by Shares Chartered Company Holding Company Private Companies Limited by Guarantee Statutoty Company Public Subsidiary Registered Company Unlimited Companies Government Company POWERED BY ABHIMANU IAS , MAIL AT INFO@ ABHIMANU.COM.. 4
Abhipedia Public Company: A public company means a company which (a) is not a private company, (b) has minimum paid up capital of Rs. 5 lakh rupees or such higher paid-up capital, as may be prescribed and (c) is a company which is not a subsidiary of a private company. Private Company: A private company is one which has a minimum paid up capital of Rs. 1 Lakh rupees or such higher paid-up share capital as may be prescribed, and which by its articles: (a) restricts the right to transfer its shares; (b) limits the number of its members to 50 members (excluding its employees) increased to 200 members; (c) prohibits any invitation to the public to subscribe for any shares in or debentures of the company. (d) prohibits any invitation or acceptance of deposits from person other than its members, directors, and relatives. POWERED BY ABHIMANU IAS , MAIL AT INFO@ ABHIMANU.COM.. 5
Abhipedia SHARE CAPITAL Innumerable streams of capital contribution merge their identities in a common capital account called as Share Capital Account . Authorised Capital(Nominal or Registered capital) Subscribed Capital Issued Capital Called up Capital Paid up Capital Uncalled Capital Reserve Capital POWERED BY ABHIMANU IAS , MAIL AT INFO@ ABHIMANU.COM.. 6
Abhipedia AUTHORISED CAPITAL Issued Capital Subscribed Capital Subscribed & fully paid up Subscribed but not fully paid up Unissued Capital- Notes to Accounts- Particular Amount Share Capital- Authorised or Registered or Nominal Capital- Issued Capital Subscribed capital Less calls in arrears - POWERED BY ABHIMANU IAS , MAIL AT INFO@ ABHIMANU.COM.. 7
Abhipedia Nature and Classes of Shares As per Section 43 of The Companies Act,2013 , a company can issue two types of shares (1) preference shares, and (2) equity shares (also called ordinary shares) POWERED BY ABHIMANU IAS , MAIL AT INFO@ ABHIMANU.COM.. 8
Abhipedia Preference Shares (a) That it carries a preferential right to dividend to be paid either as a fixed amount payable to preference shareholders or an amount calculated by a fixed rate of the nominal value of each share before any dividend is paid to the equity shareholders. (b) That with respect to capital it carries or will carry, on the winding up of the company, the preferential right to the repayment of capital before anything is paid to equity shareholders. The preference shares can be participating and non-participating. Similarly, these shares can be cumulative or non-cumulative, and redeemable or irredeemable. POWERED BY ABHIMANU IAS , MAIL AT INFO@ ABHIMANU.COM.. 9
Abhipedia Equity Shares The equity share capital may be 1. with voting rights; or 2. with differential rights as to voting, dividend or otherwise in accordance with such rules and subject to such conditions as may be prescribed. POWERED BY ABHIMANU IAS , MAIL AT INFO@ ABHIMANU.COM.. 10
Abhipedia Types of Preference Shares: Cumulative Preference Shares: Non-Cumulative Preference Shares: CUMULATIVE Participating Preference Shares: Non-Participating Preference Shares: PARTICIPATION Convertible Preference Shares: Non-convertible Preference share: CONVERSION Redeemable Preference Shares: Irredeemable Preference shares REDEMPTION POWERED BY ABHIMANU IAS , MAIL AT INFO@ ABHIMANU.COM.. 11
Abhipedia CALLS IN ARREARS & CALLS IN ADVANCE It is to be noted that minimum subscription Section 39(1) of the Companies Act,2013 and as per the provisions of SEBI (Securities and Exchange Board of India) of capital cannot be less than 90% of the issued amount according to SEBI Table F for Articles of Association Rate of Interest on Calls in Arrears (@10% p.a) Calls in Advance (@12% p.a) POWERED BY ABHIMANU IAS , MAIL AT INFO@ ABHIMANU.COM.. 12
Abhipedia REFUND OF MONEY Section 42(6) read as follows: A company making an offer or invitation under this section shall allow its securities within sixty days from the date of receipt of the application money for such securities and if the company is not able to allot the securities within that period, it shall repay the application money to the subscribers within fifteen days from the date of completion of sixty days and if the company fails to repay the application money within the aforesaid period, it shall be liable to repay that money with interest at the rate of twelve per cent per annum from the expiry of the sixtieth day: Provided that monies received on application under this section shall be kept in a separate bank account in a scheduled bank and shall not be utilized for any purpose other than for adjustment against allotment of securities; or for the repayment of monies where the company is unable to allot securities. POWERED BY ABHIMANU IAS , MAIL AT INFO@ ABHIMANU.COM.. 13
Abhipedia JOURNAL ENTRIES POWERED BY ABHIMANU IAS , MAIL AT INFO@ ABHIMANU.COM.. 14
Abhipedia JOURNAL ENTRIES POWERED BY ABHIMANU IAS , MAIL AT INFO@ ABHIMANU.COM.. 15
Abhipedia Preference shares issued to promoters or for purchase of business can be issued for- a) Consideration in cash b) Consideration other than cash c) Both d) None of the above b) Both Preference shares are issued to promoters and shares issued to vendors for the asset they provide. So these shares are issued for other than cash or they can purchase it for cash. POWERED BY ABHIMANU IAS , MAIL AT INFO@ ABHIMANU.COM.. 16
Abhipedia Under what circumstances shares are allotted on pro rata basis- a) Under subscription b) Over subscription c) Fully subscribed shares d) None of the above b) Over subscription When shares applied exceed the shares that can be allotted is termed as over subscription. In such a case shares can be allotted on pro rata basis where partial shares are allotted. POWERED BY ABHIMANU IAS , MAIL AT INFO@ ABHIMANU.COM.. 17
Abhipedia Shares cannot be issued on a) Par b) Premium c) Discount d) None of the above c) Discount As per The Companies Act, 2013 shares cannot be issued at a discount. If the face value of Share is Rs. 10 then it cannot be issued at a price less than 10 i.e. discount. POWERED BY ABHIMANU IAS , MAIL AT INFO@ ABHIMANU.COM.. 18
Abhipedia At the time of death of partner the executor or legal representatives gets a) Profit for the whole financial year b) Profit till the time the books are closed c) Profit till the date of his death d) None of the above a) Profits till the date of his death are calculated and the total amount to be paid to him is either paid fully in cash or if partly paid then shown as a loan to the executor. Profit till the date of his death POWERED BY ABHIMANU IAS , MAIL AT INFO@ ABHIMANU.COM.. 19
Abhipedia The profit on revaluation is transferred to- a) Capital account of leaving partner b) Capital account of all partners in old ratio c) Capital Account of all partners in new ratio d) Capital account of remaining partners in new Ratio b) Capital account of all partners in old ratio The profit earned through the revaluation account is transferred to credit of capital account. Particular Amount Particular Amount To loss on revaluation To Drawings To bal c/d By bal b/d By profit on revaluation By accumulated reserves By additional capital POWERED BY ABHIMANU IAS , MAIL AT INFO@ ABHIMANU.COM.. 20
Abhipedia THANK YOU POWERED BY ABHIMANU IAS , MAIL AT INFO@ ABHIMANU.COM.. 21
