ACCOUNTING FOR SHARE CAPITAL NOTES | CLASS 12TH

SUBJECT- ACCOUNTANCY

        CLASS- 12TH 

       LANGUAGE- ENGLISH

Meaning and characteristics of a company:- 

A company or a joint stock company is an entity incorporated by a group of person through the process of law for undertaking a business. It is an artificial person and is separate from its member. It normally has a share capital divide into units called shares the owner of which are known as the members of shareholders. Insolvency or a death of a member does not affect the company that is the company continuous even if a member becomes insolvent or dies.

" company means a company incorporated under this act or any previous company law"

 ( Section 2(20) of the companies Act, 2013)

" companies is an artificial person, created by law having separate entity with the perpetual succession and a common seal"

( Prof. Haney)

Characteristics or features of a company:-

• Incorporation:-  A company is an artificial person created through the process of law, that is the companies Act either under the present companies Act, 2013 for any previous companies Acts.

• Separate legal entity:-  A company is an artificial person having a legal entity separate from its shareholders.

• Artificial person:-  In the eyes of law it is an artificial person. It can own property, enter into contract, conduct business, sue or be sued for its debts and actions. 

• Perpetual Existence:-  A company has a perpetual succession that is its existence is not affected by the death, lalunacy,  a bankruptcy of it's member or shareholders. The life of company comes to an end only by winding up to the process of law.

• Limited liability:-  Liability of its members is limited to the value of shares subscribed by them or amount guaranteed to be paid at the time of winding up in the case of companies limited by guarantee. However, in case of companies incorporated with unlimited liabilities, Liability of members is unlimited.

• Transferability of shares:-  Shares of a company are freely transferable, except  in case of private companies. Transfer of shares of private companies is regulated by its articles of association.

• Management and ownership:- A company is not managed by all the members but by their elected representatives call directors. Thus, management and ownership are separate.

• Common seal:- A company may or may not have a common seal. if it has a common seal, it is affixed to  all the important documents of the company.

Kinds of Companies:- 

There are three types of companies-

1. One person company

2. Private company

3. Public company

One Person Company:-

One person company is a company which has only one person as a member.

Rule 3 of the companies (incorporation) rules 2014 provides that:

1. Only a natural person being an Indian citizen and resident in India can form one person company or can be nominee for the sole member of one person company.

2. One Person can form only one 'one person company' or become nominee of only one such company.

3. It cannot be formed for charitable purpose.

4. It cannot carry out non banking financial investment activities including investments in securities of any body corporate.

5. It's paid-up share capital is not more than ₹ 50 Lakhs.

6. Its average annual turnover of 3 years does not exceed ₹2 crores.

Private Company:- 

A private company is one which has a minimum paid- up share capital as may be prescribed and which by it's articles of association:-

1. Restricts the right to transfer its share if any.

2. Except in the case of one person company, limits the number of its members excluding its present or past employment members to 200. Where shares are held by two or more person jointly they shall be treated as a single member.

3. Prohibits any invitation to the public to subscribe for any securities of the company.

"A private company must have at least two members".  ( Section 2(68) of the companies Act, 2013)

" The name of private company ends with the words 'Private Limited".

Public company:- 

A public company is a company which:-

1. Is not a parent company.

2. Has a minimum paid up capital as may be prescribed.

3. is a private company being a subsidiary of a company which is not a private company.

"A public company must have at least 7 members there is no restriction on the maximum number of members".

( Section 2 (71) of the companies Act, 2013)

The name of a public company ends with the word 'Limited'

A Public company can raise its capital by issue of shares to public for subscription. A company private or public may be- 

1. Limited Liability company.

2. Unlimited liability company.

3. A company limited by guarantee.

Limited liability company:-  A company having the liability of its members limited by the memorandum of the amount, if any unpaid on shares respectively held by them is termed as "a company limited by shares".

Unlimited liability company:-  It is a company where the liability of its members is unlimited. Thus, in the event of winding up of unlimited liability company, debts of the company shall be met from private property of the members.

Company limited by guarantee:-. It is a company having the liability of its members limited by the memorandum to such amount as the members may respectively undertake to contribute to the assets of the company in the event of it being wound up.

Incorporation of a company:- 

The procedure for incorporating a company can be divided into four principal stages:-

1. Promotion.

2. Incorporation or registration of a company.

3. Capital subscription.

4. Commencement of business.

Promotion:-. It is the first stage of the company's incorporation. A person or group of person's agree to start business in the form of a company. These persons are called promoters.

Incorporation or registration of a company:-  A company is incorporated following the procedure described in the companies Act 2013. The promoters after getting the name of the proposed company approved from the registrar  of companies submit memorandum of association and articles of association consent of first directors to act as directors and a declaration that the requirements of the companies Act have been complied with.

 The registration of a company's thereafter issue certificate of incorporation, if he is satisfied that the requirements of the companies Act 2013 have been complied with the company thereafter come into existence.

Capital subscription and Commencement of Business:-  A company cannot commence its business or  exercise borrowing powers unless:-

1. Declaration is filled by a director with the registrar of companies to the effect that every subscriber to the memorandum of association has paid the value of the Shares, if any agreed to be taken by him.

2. The company has filled with the registrar of companies a verification of its registered office.

Prospectus:-. A public company e issued a document called prospectus in which terms and conditions of the issue are stated along with the purpose for which the proceeds of the issue of security shall be used.

Prospectus means any document described or issued as a prospectus and includes a red herring prospectus or shelf prospectus or any notice, circular, advertisement or other documents inviting offers from the public for the subscription of purchase of any security of a body corporate.  

( Section 2(70) of the companies Act 2013)

Minimum subscription and provision of Securities and Exchange Board of India:- 

( Section 39(1) of the companies Act 2013)

 

Minimum subscription is the amount stated in the prospectus that must be subscribed and the amount payable on application for the amount stated as a minimum subscription have been paid to the received by a company by cheque or other instrument.

SEBI ( securities and exchange Board of India) the regulatory authorities for listed companies prescribes that a company must receive minimum subscription of 90% of the shares issued for subscription before it's allot of the shares.

Thus, unless 90% of the sum payable on applications for shares issued to the public for subscription is received by the company, shares cannot be allotted by the company.

In case, minimum amount is not subscribed and the amount payable on application is not received within the specified period, then the application money shall be refunded within 15 days from the closure of the issue.

Preliminary expenses:-.  Preliminary expenses are the expenses incurred for incorporating the company, such as registration fees paid to the registrar of Companies, legal expenses, public issue expenses etc. These expenses may be written off from security premium reserve( Permitted by section 52(2) of the companies Act 2013)  or from the statement of profit and loss in the year they are incurred.