Unit 1: Accounting for Share Capital

A Public company, as per  Sec. 2(71) and Sec. 3 (1) (a) of the Company Act, 2013, means a company which has the following characteristics:

a. It is not a private company

b. It has a minimum paid-up share capital of five lakh rupees or such higher paid-up capital as may be prescribed

c. It is a private company, being a subsidiary of a company which is not a private company.

The stock of a public company can be acquired by any individual, and it may be through IPO or trading on the stock market.

As per Section 2(68) of the Companies Act, 2013, Private limited companies are defined as companies that have the following characteristics:

1. Companies whose article of association restricts the transfer of shares

2. No minimum paid-up capital

3. Minimum 2 members and maximum of 200 members (Only one in case of One Person Company)

4. Must include “private limited” or “Pvt Ltd” in their names

5. Shares of a private company are not traded in stock exchanges

A shareholder has to pay allotment money for holding the shares and has to pay the calls, which are part of the share allotment. When a shareholder fails to do so, a 14 days’ notice is served to the shareholder. If the shareholder does not pay in these 14 days, the shares will be forfeited.

When an investor (shareholder) fails to pay all the instalments for the allotted shares in due time, the company expects the investor to pay the amount on subsequent calls or stages. The amount of money that is paid at later stages is called as Call-in-Arrears.

Public companies whose shares are listed in recognised stock exchanges for public trading are called Listed Companies. Such companies are also known as Quota Companies. Once the securities are listed, it helps the investors know the value of their investment in a listed company. It provides the potential investors with an idea about the goodwill of the company and helps them on taking future investment decisions and evaluate the viability of investing in the company.

Securities premium can be used for these activities:

1. Issuing fully paid-up bonus shares to existing shareholders.

2. Writing off the expense of the issue of shares and debentures, such as the discount given on the issue of shares.

3. Writing off preliminary expenses

4. Buying back shares

5. For paying premium payable on redemption of debentures.

When the shareholder pays the whole amount before the share payment date becomes due, i.e., before the share issuing company makes a call for it. It is known as Calls-in-advance.

It refers to the minimum amount of shares that must be subscribed by the public so that the share allotting company can allot shares to the applicants. If Minimum Subscription is not attained, the company cannot allot shares to its applicants, and it should refund the amount received to the public. Minimum Subscription should not be less than 90% of the amount issued.