Chapter—Issue of sharesChapter—Issue of shares

Introduction of joint stock company---Introduction of joint stock company---According toAccording to

section 3(1)(i) of indian companies act section 3(1)(i) of indian companies act 1956-”company means a company formed 1956-”company means a company formed

and registered under this act or an and registered under this act or an existing company.existing company.

According tosection3(1)(ii)—existing According tosection3(1)(ii)—existing company means a company formed and company means a company formed and

registered under any of the previous registered under any of the previous company law.company law.

According to prof. haney—”a company is According to prof. haney—”a company is an artificial person,created by law having a an artificial person,created by law having a separateentity with a perpetual succession separateentity with a perpetual succession

and a common seal.and a common seal.

Features of a companyFeatures of a company

Incorporated associationIncorporated associationSeparate legal entitySeparate legal entityPerpetual successionPerpetual successionLimited liabilityLimited liabilityCommon sealCommon sealMaintenance of books as per companies Maintenance of books as per companies

actact

Share capitalShare capital

The capital of the company raised through issue The capital of the company raised through issue of shares is share capital.of shares is share capital.

Kinds of share capital---Kinds of share capital--- Authorised capitalAuthorised capital Issued capitalIssued capital Subscribed capitalSubscribed capital Called up capitalCalled up capital Paid up capitalPaid up capital Reserve capitalReserve capital

shareshare

The capital of a company is divided into a The capital of a company is divided into a number of equal parts. Each part is called number of equal parts. Each part is called a share.a share.

Types of shares----preference sharesTypes of shares----preference shares ---------------------equity shares---------------------equity sharesPreference shares are shares having Preference shares are shares having

following two preferences-following two preferences-At the time of payment of dividendAt the time of payment of dividendAt the time of return of capitalAt the time of return of capital

Types of preference sharesTypes of preference shares

Cumulative preference sharesCumulative preference sharesNon-cumulative preference sharesNon-cumulative preference sharesRedeemable preference sharesRedeemable preference sharesNon-redeemable preference sharesNon-redeemable preference sharesParticipating preference sharesParticipating preference sharesNon-participating preference sharesNon-participating preference sharesConvertible preference sharesConvertible preference sharesNon-convertible preference sharesNon-convertible preference shares

Equity sharesEquity shares An equity share is a share which is not An equity share is a share which is not

preference share.preference share. Difference between pref. & equity shares-Difference between pref. & equity shares- Pts.of difference--------Pts.of difference-------- Rate of dividendRate of dividend Priority in payment of dividendPriority in payment of dividend Participation in managementParticipation in management Return of capitalReturn of capital Arrears of dividendArrears of dividend Voting rightsVoting rights

Capital reserveCapital reserve The reserve which is created out of capital profit is The reserve which is created out of capital profit is

known as capital reserve.Dividend can not be paid out known as capital reserve.Dividend can not be paid out of this reserve but it can be used to meet capital losses of this reserve but it can be used to meet capital losses or to declare a bonus share.Following are the principal or to declare a bonus share.Following are the principal sources of capital reserve---sources of capital reserve---

Profit on sale of a fixed assetProfit on sale of a fixed asset Profit on revaluation of assets& liabilitiesProfit on revaluation of assets& liabilities Profit on forfeiture & reissue of forfeited sharesProfit on forfeiture & reissue of forfeited shares Profit on redemption of debentures at a discountProfit on redemption of debentures at a discount Profit earned by a company prior to its incorporationProfit earned by a company prior to its incorporation

Capital reserve is shown in liability side of b/s under the Capital reserve is shown in liability side of b/s under the head ‘reserve and surplus.head ‘reserve and surplus.

Difference b/w Res. Cap. & Capital Difference b/w Res. Cap. & Capital ReserveReserve

Serial no.Serial no. Basis of Basis of differencedifference

Reserve capitalReserve capital Capital reserveCapital reserve

11 meaningmeaning Portion of Portion of uncalled capitaluncalled capital

Created out of Created out of capital profitscapital profits

22 resolutionresolution Special Special resolutionresolution

No need of No need of resolutionresolution

33 amountamount Which has not Which has not been recievedbeen recieved

Which has Which has already been already been recd.recd.

44 a/cting a/cting treatmenttreatment

No treatmentNo treatment Shown in b/sShown in b/s

55 useuse Can be called Can be called up at the time of up at the time of liquidation.liquidation.

Can be used to Can be used to meet meet cap.losses.cap.losses.

Preliminary expensesPreliminary expenses

Expenses incurred on the formation of a Expenses incurred on the formation of a company aretermed as preliminary exps.These company aretermed as preliminary exps.These include-include-

Expenses on preparation & printing of Expenses on preparation & printing of co.documents.co.documents.

Stamp duty &regn.fee on these documents.Stamp duty &regn.fee on these documents. Duty on authorised capital.Duty on authorised capital. Exps. On preparation,printing & issue of Exps. On preparation,printing & issue of

prospectus.prospectus. Underwriting commission.Underwriting commission. Cost of preliminary books &common seal.Cost of preliminary books &common seal.

Treatment of preliminary expensesTreatment of preliminary expenses

These exps.may be written off against These exps.may be written off against security premium a/c. otherwise these may security premium a/c. otherwise these may be written off from proifit & loss a/c. be written off from proifit & loss a/c. gradually over some period.The gradually over some period.The unwrittenoff portion of preliminary unwrittenoff portion of preliminary expenses is shown on the asset side of expenses is shown on the asset side of the b/s under the heading ‘miscellaneous the b/s under the heading ‘miscellaneous expenditure.’expenditure.’