Accountancy: Class 12 (Part 2) — Chapter 1: Accounting for Share Capital

• Body Corporate: Formed and registered under the Companies Law.
• Separate Legal Entity: Distinct from its members; can hold property and enter contracts in its own name.
• Limited Liability: Liability of members is limited to the unpaid amount of shares held or the guarantee given.
• Perpetual Succession: Continuous existence unaffected by death, insanity, or insolvency of members.
• Common Seal: Acts as the official signature of the company.
• Transferability of Shares: Shares of a public limited company are freely transferable.
• May Sue or be Sued: Can enforce legal rights and be legally held liable in its own name.

1. On the Basis of Liability:
   • Companies Limited by Shares: Liability limited to the nominal value of shares held.
   • Companies Limited by Guarantee: Liability limited to the amount members undertake to contribute during winding up.
   • Unlimited Companies: No limit on the liability of members (rare in India).
2. On the Basis of Number of Members:
   • Public Company: Not a private company; minimum 7 members, no maximum limit.
   • Private Company: Restricts share transfer; minimum 2 members, maximum 200 (excluding employees).
   • One Person Company (OPC): Only one person as a member; paid-up capital $\le$ Rs. 50 Lakhs, average annual turnover $\le$ Rs. 2 Crores.

• Authorised/Nominal Capital: Maximum amount of share capital a company is authorised to issue by its Memorandum of Association.
• Issued Capital: Part of authorised capital offered to the public for subscription.
• Subscribed Capital: Part of issued capital actually subscribed by the public.
  • Subscribed and Fully Paid-up: Entire face value called and paid.
  • Subscribed but not Fully Paid-up: Called up but not fully paid, or face value not fully called.
• Called-up Capital: Part of subscribed capital called by the company to pay.
• Paid-up Capital: Actual amount received from shareholders.

• Reserve Capital: Portion of uncalled capital reserved to be called only in the event of winding up.

• Preference Shares: Carry preferential rights to receive dividends at a fixed rate and repayment of capital on winding up before equity shares. Types include Cumulative/Non-cumulative, Participating/Non-participating, and Redeemable/Irredeemable.
• Equity Shares: Shares that do not enjoy preferential rights; they receive dividends based on available profits and carry voting rights.

According to SEBI guidelines, minimum subscription cannot be less than 90% of the issued amount. If this condition is not satisfied, the company must refund the entire subscription amount within the prescribed period (usually 8 days from closure of subscription), failing which interest at 15% p.a. is applicable.

• Calls in Arrears: Unpaid called-up capital. Interest is charged as per Table F at a rate not exceeding 10% p.a.
• Calls in Advance: Amount paid by shareholders before it is called up. Interest is paid as per Table F at a rate not exceeding 12% p.a.

When applications exceed the shares offered, it is a case of Over Subscription. Directors have three alternatives:

1. Reject excess applications and refund money.
2. Make pro-rata allotment (proportionate allotment) to all applicants, adjusting excess application money towards allotment/calls.
3. A combination of rejection and pro-rata allotment.

Shares issued at a price higher than nominal value are issued at a premium. The excess is credited to the Securities Premium Account, which can only be used for:

• Issuing fully paid bonus shares.
• Writing off preliminary expenses.
• Writing off commission paid or discount allowed on issue of securities.
• Providing for premium payable on redemption of preference shares or debentures.
• Buy-back of own shares.

When assets are purchased and paid for by issuing shares:

Forfeiture refers to the cancellation of allotment and confiscation of the amount already paid due to non-payment of calls.

Journal Entry (Issued at Par):

Forfeited shares can be reissued at par, premium, or discount. The discount allowed on reissue cannot exceed the amount forfeited on those shares. Any remaining balance in the Share Forfeiture Account after reissue is transferred to the Capital Reserve Account.

Journal Entry for Transfer of Profit: