SHARE CAPITAL, CAPITAL STOCK

& IT’S COMPONENTSSEMINAR BY

-RUNALY MISQUITH

-ROHAN MONIS

(Meaning)

• The M.O.A. must state the amount of capital with which the company is desired to be registered and the number of shares into which it is to be divided.

• When total capital of a company is divided into shares, then it is called Share capital.

• Share capital is the total amount of capital collected from its shareholders for achieving the common goal

A joint stock company should have capital in order to finance its activities. It raises its capital by issue of shares.

TYPES

1. Authorized, registered, maximum

or normal capital

• The maximum amount of capital, which a company is authorized to raise from the public by the issue of shares, is known as authorized capital.

• It is a capital with which a company is registered, therefore it is also known as registered capital.

2.Issued Capital

• Generally, a company does not issue its authorized capital to the public for subscription, but issues a part of it.

• So, issued capital is a part of authorized capital, which is offered to the public for subscription, including shares offered to the vendor for consideration other than cash.

• The part of authorized capital not offered for subscription to the public is known as 'un-issued capital'.

• Such capital can be offered to the public at a later date.

3.Subscribed Capital

• It can not be said that the entire issued capital will be taken up or subscribed by the public.

• It may be subscribed in full or in part.

• The part of issued capital, which is subscribed by the public, is known as subscribed capital

4.Called Up Capital

• It is that part of subscribed capital, which is called by the company to pay on shares allotted.

• It is not necessary for the company to call for the entire amount on shares subscribed for by shareholders.

• The amount, which is not called on subscribed shares, is called uncalled capital.

5. Paid-up Capital

• It is that part of called up capital, which actually paid by the shareholders. Therefore it is known as real capital of the company.

• Whenever a particular amount is called and a shareholder fails to pay the amount fully or partially, it is known an unpaid calls or calls in arrears.

• Paid-up Capital = Called up capital - calls in arrears

• It is that part of uncalled capital which has been reserved by the company by passing a special resolution to be called only in the event of its liquidation.

• This capital can not be called up during the existence of the company

• It would be available only in the event of liquidation as an additional security to the creditors of the company

TERMS IN SHARE CAPITAL

CAPITAL STOCK :The common and preferred stock a company is

authorized to issue, according to their corporate charter.

Capital stock represents the size of the equity position of a firm and can be found on the balance sheet (or notes) of a typical financial statement.

Firms can both issue more capital stock, or buyback shares that are currently owned by shareholders.

Large companies which may have thousands of shareholders appoint registrars and transfer agent to handle the numerous ownership changes in the company shares in electronic form to avoid handling of too much of paperwork that is associated with share transfers.

These are known as demat shares.

SHARES

When a shareholder transfers shares, he/she must complete a share transfer form and send along with share certificate to a company for recording the change in share ownership.

SHARE CERTIFICATEThe ownership of shares in a company is

evidenced by a share certificate that indicates the kind and number of share as well as their distinctive serial numbers.

PAR VALUE

It represents the minimum amount that a

shareholder must pay on each shares.

The par value ( face value) of a company’s stock constitutes the company’s legal minimum capital.

ACCOUNTING FOR SHARE CAPITAL

• PAR VALUE STOCK

• SHARE PREMIUM / SECURITIES PREMIUM

• NO-PAR STOCK

ISSUANCE OF SHARE CAPITAL WITH PAR

VALUE• DEEPAK COMPANY ISSUES 1000 EQUITY

SHARES OF RS 10 PER EQUITY SHARES AT RS 15 (INCLUDING PREMIUM RS 5) REQUIRING FULL PAYMENT.

• CASH 15000

▫ EQUITY SHARE CAPITAL 10000

▫ SHARE PREMIUM 5000

ISSUANCE OF SHARE CAPITAL AT A

DISCOUNT• DEEPAK COMPANY ISSUES ITS SHARES AT

RS 9.50 PER SHARE

• CASH 9500

• DISCOUNT ON ISSUE OF SC 500

▫ EQUITY SHARE CAPITAL 10000

ISSUANCE OF SHARE CAPITAL WITHOUT

PAR VALUE• DEEPAK COMPANY ISSUED 1000 SHARES OF

NO PAR VALUE AT RS 15 PER SHARE

• CASH 15000

▫ EQUITY SHARE CAPITAL 15000

• CASH 15000

▫ EQUITY SHARE CAPITAL 7000

▫ SHARE PREMIUM 8000

ISSUANCE OF SHARE CAPITAL FOR NON

CASH ASSETS AND SERVICES• DEEPAK COMPANY’S LAWYERS AGREE TO

ACCEPT 500 SHARES OF RS 10 PAR VALUE FOR PREPARATION OF LEGAL DOCUMENTS AND OTHER SERVICES RENDERED IN CONNECTION WITH FORMATION OF THE COMPANY. THE FAIR VALUE OF THE SERVICES IS RS 8000.

• PRELIMINARY EXPENSES 8000

▫ EQUITY SHARE CAPITAL 5000

▫ SHARE PREMIUM 3000

• DEEPAK COMPANY ISSUES 10,000 EQUITY SHARES OF RS 10 EACH TO ACQUIRE A PIECE OF LAND BUT THE FAIR VALUE OF THE LAND IS NOT EVIDENT. IF THE COMPANY’S SHARES TRADE AT RS 18

• LAND 180000

▫ EQUITY SHARE CAPITAL 100000

▫ SHARE PREMIUM 80000

RIGHTS ISSUE OF SHARE CAPITAL

• An existing shareholder who receives a rights offer may

▫ Take up all the shares offered to him

▫ Take up less than the number of shares offered to him

▫ Renounce his rights in favor of another person

▫ Not take up the rights offer

RECEIPT OF SHARE OF CAPITAL IN

INSTALLMENTS• CASH

▫ SHARE APPLICATION AND ALLOTMENT• SHARE APPLICATION AND ALLOTMENT

▫ EQUITY SHARE CAPITAL▫ CASH

• CASH▫ SHARE APPLICATION AND ALLOTMENT

• SHARE FIRST CALL▫ EQUITY SHARE CAPITAL

• CASH▫ SHARE FIRST CALL

• SHARE SECOND AND FINAL CALL▫ EQUITY SHARE CAPITAL

• CASH▫ SHARE SECOND AND FINAL CALL

FORFEITURE OF SHARES

• DEEPAK COMPANY DID NOT RECEIVE THE AMOUNT OF SECOND CALL ON 100 SHARES UNTIL DECEMBER 29 AND THE SHARES WERE FORFEITED ON JANUARY 17.

• EQUITY SHARE CAPITAL 1000

▫ SHARES SECOND AND FINAL CALL 200

▫ SHARES FORFEITED 800