Classification Of Capital CA Foundation Notes | EduRev

Business Laws for CA Foundation

Created by: Sushil Kumar

CA Foundation : Classification Of Capital CA Foundation Notes | EduRev

The document Classification Of Capital CA Foundation Notes | EduRev is a part of the CA Foundation Course Business Laws for CA Foundation.
All you need of CA Foundation at this link: CA Foundation

CLASSIFICATION OF CAPITAL

The term Capital has a variety of meanings. It means one thing to economists; another to accountants and still another to businessmen and lawyers. In relation to a company limited by shares, the word capital means share-capital, i.e., the capital or figure in terms of so many rupees divided into shares of fixed amount. In other words, the contributions of persons to the common stock of the company form the capital of the company. The proportion of the capital to which each member is entitled, is his share. A share is not a sum of money; it is rather an interest measured by a sum of money and made up of various rights contained in the contract.

In the domain of Company Law, the term ‘capital’ is used in the following senses:

(a) Nominal or authorised or registered capital: This form of capital has been defined in section 2(8) of the Companies Act, 2013. “Authorised capital” or “Nominal capital” means such capital as is authorised by the memorandum of a company to be the maximum amount of share capital of the company. Thus, it is the sum stated in the memorandum as the capital of the company with which it is to be registered being the maximum amount which it is authorised to raise by issuing shares, and upon which it pays the stamp duty. It is usually fixed at the amount, which, it is estimated, the company will need, including the working capital and reserve capital, if any.

(b) Issued capital: Section 2(50) of the Companies Act, 2013 defines “issued capital” which means such capital as the company issues from time to time for subscription. It is that part of authorised capital which is offered by the company for subscription and includes the shares allotted for consideration other than cash.

Schedule III to the Companies Act, 2013, makes it obligatory for a company to disclose its issued capital in the balance sheet.

(c) Subscribed capital: Section 2(86) of the Companies Act, 2013 defines “subscribed capital” as such part of the capital which is for the time being subscribed by the members of a company.

It is the nominal amount of shares taken up by the public. Where any notice, advertisement or other official communication or any business letter, bill head or letter paper of a company states the authorised capital, the subscribed and paid-up capital must also be stated in equally conspicuous characters. A default in this regard will make the company and every officer who is in default liable to pay penalty extending Rs. 10,000 and Rs. 5,000 respectively. [Section 60].

(d) Called-up capital: Section 2(15) of the Companies Act, 2013 defines “called-up capital” as such part of the capital, which has been called for payment. It is the total amount called up on the shares issued.

(e) Paid-up capital is the total amount paid or credited as paid up on shares issued. It is equal to called up capital less calls in arrears.


SHARES

(I) Nature of shares: Section 2(84) of the Companies Act, 2013 defines the term ‘share’ which means a share in the share capital of a company and includes stock. A share thus represents such proportion of the interest of the shareholders as the amount paid up thereon bears to the total capital payable to the company. It is a measure of the interest in the company’s assets to which a person holding a share is entitled.

Share is an interest in the company: Farwell Justice, in Borland Trustees vs. Steel Bors. & Co. Ltd. observed that “a share is not a sum of money but is an interest measured by a sum of money and made up of various rights contained in the contract, including the right to a sum of money of a more or less amount”. You should note that the shareholders are not, in the eyes of law, part owners of the undertaking. The undertaking is somewhat different from the totality of the shareholders. The rights and obligations attaching to a share are those prescribed by the memorandum and the articles of a company. It must, however, be remembered that a shareholder has not only contractual rights against the company, but also certain other rights which accrue to him according to the provisions of the Companies Act.

Shares are a movable property: According to section 44 of the Companies Act, 2013, the shares or debentures or other interests of any member in a company shall be movable property transferable in the manner provided by the articles of the company.

Shares shall be numbered: Section 45 provides, every share in a company having a share capital, shall be distinguished by its distinctive number. This implies that every share shall be numbered. However, this shall not apply to a share held by a person whose name is entered as holder of beneficial interest in such share in the records of a depository.

(II) Kinds of share capital: Section 43 of the Companies Act, 2013 provides the kinds of share capital. According to the provision the share capital of a company limited by shares shall be of two kinds, namely:

Classification Of Capital CA Foundation Notes | EduRev

(i) Equity share capital-

(1) with voting rights; or

(2) with differential rights as to dividend, voting or otherwise in accordance with prescribed rules;

Example:

It is to be noted that, Tata Motors in 2008 introduced equity shares with differential voting rights called ‘A’ equity shares in its rights issue. In the issue, every 10 ‘A’ equity shares carried only one voting right but would get 5 percentage points more dividend than that declared on each of the ordinary shares. Since ‘A’ equity share did not carry the similar voting rights, it was being traded at discount to other common shares having full voting. Other companies which have issued equity shares with differential voting rights (popularly called DVRs) are Future Retail, Jain Irrigation among others.

(ii) Preference share capital:

However, this Act shall not affect the rights of the preference shareholders who are entitled to participate in the proceeds of winding up before the commencement of this Act.

According to explanation to section 43:

1. ‘‘Equity share capital’’, with reference to any company limited by shares, means all share capital which is not preference share capital;

2. ‘‘Preference share capital’’, with reference to any company limited by shares, means that part of the issued share capital of the company which carries or would carry a preferential right with respect to-

(a) payment of dividend, either as a fixed amount or an amount calculated at a fixed rate, which may either be free of or subject to income-tax; and

(b) repayment, in the case of a winding up or repayment of capital, of the amount of the share capital paid-up or deemed to have been paid-up, whether or not, there is a preferential right to the payment of any fixed premium or premium on any fixed scale, specified in the memorandum or articles of the company;

Capital shall be deemed to be preference capital, despite that it is entitled to either or both of the following rights, namely:

(a) that in respect of dividends, in addition to the preferential rights to the amounts specified as above, it has a right to participate, whether fully or to a limited extent, with capital not entitled to the preferential right aforesaid;

(b) that in respect of capital, in addition to the preferential right to the repayment, on a winding up, of the amounts specified above, it has a right to participate, whether fully or to a limited extent, with capital not entitled to that preferential right in any surplus which may remain after the entire capital has been repaid.

Exception: In case of private company- Section 43 shall not apply where memorandum or articles of association of the private company so provides.

Complete Syllabus of CA Foundation

Dynamic Test

Content Category

Related Searches

practice quizzes

,

ppt

,

Sample Paper

,

Viva Questions

,

Extra Questions

,

study material

,

Summary

,

video lectures

,

past year papers

,

Classification Of Capital CA Foundation Notes | EduRev

,

Important questions

,

Objective type Questions

,

Classification Of Capital CA Foundation Notes | EduRev

,

pdf

,

Semester Notes

,

Previous Year Questions with Solutions

,

Classification Of Capital CA Foundation Notes | EduRev

,

mock tests for examination

,

Free

,

Exam

,

MCQs

,

shortcuts and tricks

;