Short Notes: Accounting for Share Capital | Accountancy Class 12 - Commerce PDF Download

Introduction

• A company is an artificial entity registered under the Companies Act, 2013, with a separate legal identity, distinct from its shareholders, and uses a common seal as its signature.
• Managed by a Board of Directors, as direct management by all members is impractical.
• Capital raised through share capital (ownership via shares) and debentures (debt with fixed interest).

Features of a Company

• Body Corporate: Formed under Companies Act (except banks/insurance).
• Separate Legal Entity: Can own property, enter contracts, maintain bank accounts.
• Limited Liability: Members liable only for unpaid share amounts or guaranteed amounts (for guarantee companies).
• Perpetual Succession: Continues despite member changes; dissolved only legally.
• Common Seal: Acts as company’s signature for legal documents.
• Transferability of Shares: Public company shares freely transferable.
• May Sue or Be Sued: Can enforce or face lawsuits independently.

Types of Companies

• Limited by Shares: Liability limited to unpaid share value.
• Limited by Guarantee: Liability limited to guaranteed amount during winding up.
• Unlimited: No limit on member liability; rare in India.

• Public Company: Not private, no member limit.
• Private Company: Restricts share transfers, 2–200 members.
• One Person Company (OPC): Single member, Indian citizen, ≤ ₹50L paid-up capital, ≤ ₹2Cr turnover.

Share Capital of a Company

Share Capital: Funds raised through shares, pooled in Share Capital Account.

• Authorised: Maximum share capital per Memorandum.
• Issued: Offered to public for subscription.
• Subscribed: Portion of issued capital subscribed by public.
• Called-up: Amount requested from shareholders.
• Paid-up: Amount received from called-up capital.
• Uncalled: Subscribed capital not yet called.
• Reserve: Uncalled capital for winding up only.

Example: Sunrise Company Ltd. with ₹40,00,000 authorised capital, issued 2,00,000 shares (₹10 each), received ₹2 on application, ₹3 on allotment, ₹3 on first call; unpaid on 2,000 shares.

Types of Shares

• Preferential dividend and capital repayment rights.
• Types: Participating/Non-Participating, Cumulative/Non-Cumulative, Redeemable/Irredeemable.

• No preferential rights; dividends vary based on profits.
• Types: With Voting Rights, With Differential Rights.

Issue of Shares

• Process:
  1. Prospectus: Invites public investment.
  2. Applications: Received with application money (min. 5% face value).
  3. Allotment: Shares allotted if minimum subscription (90% of issued) met within 120 days, else refunded within 130 days.
• Payment Stages: Application, allotment, calls (first, second, final).
• Issue Types: At par (issue price = nominal value), at premium (issue price > nominal value).
• Accounting: Application money to Share Application Account, transferred to Share Capital on allotment; excess refunded or adjusted.

Over/Under Subscription

• Over-Subscription: More applications than shares offered.
  1. Options: Reject some, pro-rata allotment, or both.
  2. Excess money refunded or adjusted to allotment/calls.
• Under-Subscription: Fewer applications than offered; allot applied shares if minimum subscription met, else refund.

Shares at Premium/Discount

• Premium: Issue price > nominal value; credited to Securities Premium Account (used for bonus shares, expenses, etc.).
• Discount: Issue price < nominal value; rare, allowed for forfeited shares/sweat equity.
• Non-Cash Consideration: Shares issued for assets (e.g., building); number based on issue price and payable amount.

Employees Stock Option Plan (ESOP)

• Allows employees to buy shares at below-market price in future.
• Terms:
  1. Grant: Option to subscribe.
  2. Vesting: Right to apply after conditions met.
  3. Exercise: Applying for shares at exercise price.
• Requires special resolution, SEBI compliance for listed shares.

Forfeiture and Reissue of Shares

• Forfeiture: Shares cancelled for non-payment of calls; Share Capital debited, unpaid calls/Forfeited Shares credited.
• Reissue: Forfeited shares reissued at par/premium/discount (discount ≤ forfeited amount); balance to Capital Reserve.
• Premium Handling: If premium received, not debited; if unpaid, Securities Premium Reserve debited.