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karnataka class 12 commerce Accountancy Different Phases of Share Capital

karnataka class 12 commerce Accountancy Different Phases of Share Capital

karnataka class 12 commerce Accountancy Different Phases of Share Capital

Kinds of Companies

Companies can be classified either on the basis of the liability of its members or on the basis of the number of members. On the basis of liability of its members the companies can be classified into the following three categories:

(i) Companies Limited by Shares: In this case, the liability of its members is limited to the extent of the nominal value of shares held by them. If a member has paid the full amount of the shares, there is no liability on his part whatsoever may be the debts of the company. He need not pay a single paise from his private property. However, if there is any liability involved, it can be enforced during the existence of the company as well as during the winding up.

(ii) Companies Limited by Guarantee: In this case, the liability of its members is limited to the amount they undertake to contribute in the event of the company being wound up. Thus, the liability of the members will arise only in the event of its winding up.

(iii) Unlimited Companies: When there is no limit on the liability of its members, the company is called an unlimited company. When the company’s property is not sufficient to pay off its debts, the private property of its members can be used for the purpose. In other words, the creditors can claim their dues from its members. Such companies are not found in India even though permitted by the Companies Act, 1956.

karnataka class 12 commerce Accountancy Different Phases of Share Capital

On the basis of the number of members, companies can be divided into two categories as follows:

(i) Public Company: A public company means a company which (a) is not a private company, (b) has minimum paid up capital of Rs. 5 lakh rupees or such higher paid-up capital, as may be prescribed and (c) is a company which is not a subsidiary of a private company.

(ii) Private Company: A private company is one which has a minimum paid up capital of Rs. 1 Lakh rupees or such higher paid-up share capital as may be prescribed, and which by its articles: (a) restricts the right to transfer its shares; (b) limits the number of its members to fifty (excluding its employees); (c) prohibits any invitation to the public to subscribe for any shares in or debentures of the company. (d) prohibits any invitation or acceptance of deposits from person other than its members, directors, and relatives.

karnataka class 12 commerce Accountancy Different Phases of Share Capital

Features of a Company A company may be viewed as an association of person who contribute money or money’s worth to a common inventory and use it for a common purpose. It is an artificial person having corporate legal entity distinct from its members (shareholders) and has a common seal used for its signature. Thus,it has certain special features which distinguish it from the other forms of organisation.

These are as follows:

  • Body Corporate: A company is formed according to the provisions of Law enforced from time to time. Generally, in India, the companies are formed and registered under Companies Law except in the case of Banking and Insurance companies for which a separate Law is provided for.
  • Separate Legal Entity: A company has a separate legal entity which is distinct and separate from its members. It can hold and deal with any type of property. It can enter into contracts and even open a bank account in its own name.
  • Limited Liability: The liability of the members of the company is limited to the extent of unpaid amount of the shares held by them. In the case of the companies limited by guarantee, the liability of its members is limited to the extent of the guarantee given by them in the event of the company being wound up.
  • Perpetual Succession: The company being an artificial person created by law continues to exist irrespective of the changes in its membership. A company can be terminated only through law. The death or insanity or insolvency of any member of the company in no way affects the existence of the company. Members may come and go but the company continues.
  • Common Seal: The company being an artificial person, cannot sign its name by itself. Therefore, every company is required to have its own seal which acts as official signatures of the company. Any document which does not carry the common seal of the company is not binding on the company.
  • Transfer-ability of Shares: The shares of a public limited company are freely transferable. The permission of the company or the consent of any member of the company is not necessary for the transfer of shares. But the Articles of the company can prescribe the manner in which the transfer of shares will be made.
  • May Sue or be Sued: A company being a legal person can enter into contracts and can enforce the contractual rights against others. It can sue and be sued in its name if there is a breach of contract by the company.

karnataka class 12 commerce Accountancy Different Phases of Share Capital

Issue of Shares A salient characteristic of the capital of a company is that the amount on its shares can be gradually collected in easy installments spread over a period of time depending upon its growing financial requirement. The first installment is collected along with application and is thus, known as application money, the second on allotment (termed as allotment money), and the remaining installment are termed as first call, second call and so on. The word final is suffixed to the last installment. However, this in no way prevents a company from calling the full amount on shares right at the time of application.

The important steps in the procedure of share issue are :

• Issue of Prospectus: The company first issues the prospectus to the public. Prospectus is an invitation to the public that a new company has come into existence and it needs funds for doing business. It contains complete information about the company and the manner in which the money is to be collected from the prospective investors.

• Receipt of Applications: When prospectus is issued to the public, prospective investors intending to subscribe the share capital of the company would make an application along with the application money and deposit the same with a scheduled bank as specified in the prospectus. The company has to get minimum subscription within 120 days from the date of the issue of the prospectus. If the company fails to receive the same within the said period, the company cannot proceed for the allotment of shares and application money should be returned within 130 days of the date of issue of prospectus.

karnataka class 12 commerce Accountancy Different Phases of Share Capital

• Allotment of Shares: If minimum subscription has been received, the company may proceed for the allotment of shares after fulfilling certain other legal formalities. Letters of allotment are sent to those whom the shares have been allotted, and letters of regret to those to whom no allotment has been made. When allotment is made, it results in a valid contract between the company and the applicants who now became the shareholders of the company.

Shares of a company are issued either at par, at a premium or at a discount. Shares are to be issued at par when their issue price is exactly equal to their nominal value according to the terms and conditions of issue. When the shares of a company are issued more than its nominal value (face value), the excess amount is called premium . When the shares are issued at a price less than the face value of the share, it is known as shares issued at a discount.

Irrespective of the fact that shares are issued at par, premium or discount, the share capital of a company as stated earlier, may be collected in installments payable at different stages.

karnataka class 12 commerce Accountancy Different Phases of Share Capital

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karnataka class 12 commerce Accountancy Different Phases of Share Capital

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