Chapter—Issue of shares Introduction of joint stock company--- According to section 3(1)(i) of indian companies act 1956-”company means a company formed and registered under this act or an existing company. According tosection3(1)(ii)—existing company means a company formed and registered under any of the previous company law. According to prof. haney—”a company is an artificial person,created by law having a separateentity with a perpetual succession and a common seal.

Features of a company Incorporated association Incorporated association Separate legal entity Separate legal entity Perpetual succession Perpetual succession Limited liability Limited liability Common seal Common seal Maintenance of books as per companies act Maintenance of books as per companies act

Share capital The capital of the company raised through issue of shares is share capital. The capital of the company raised through issue of shares is share capital. Kinds of share capital--- Kinds of share capital--- Authorised capital Authorised capital Issued capital Issued capital Subscribed capital Subscribed capital Called up capital Called up capital Paid up capital Paid up capital Reserve capital Reserve capital

share The capital of a company is divided into a number of equal parts. Each part is called a share. The capital of a company is divided into a number of equal parts. Each part is called a share. Types of shares----preference shares Types of shares----preference shares equity shares equity shares Preference shares are shares having following two preferences- Preference shares are shares having following two preferences- At the time of payment of dividend At the time of payment of dividend At the time of return of capital At the time of return of capital

Types of preference shares Cumulative preference shares Cumulative preference shares Non-cumulative preference shares Non-cumulative preference shares Redeemable preference shares Redeemable preference shares Non-redeemable preference shares Non-redeemable preference shares Participating preference shares Participating preference shares Non-participating preference shares Non-participating preference shares Convertible preference shares Convertible preference shares Non-convertible preference shares Non-convertible preference shares

Equity shares An equity share is a share which is not preference share. An equity share is a share which is not preference share. Difference between pref. & equity shares- Difference between pref. & equity shares- Pts.of difference Pts.of difference Rate of dividend Rate of dividend Priority in payment of dividend Priority in payment of dividend Participation in management Participation in management Return of capital Return of capital Arrears of dividend Arrears of dividend Voting rights Voting rights

Capital reserve The reserve which is created out of capital profit is known as capital reserve.Dividend can not be paid out of this reserve but it can be used to meet capital losses or to declare a bonus share.Following are the principal sources of capital reserve--- The reserve which is created out of capital profit is known as capital reserve.Dividend can not be paid out of this reserve but it can be used to meet capital losses or to declare a bonus share.Following are the principal sources of capital reserve--- Profit on sale of a fixed asset Profit on sale of a fixed asset Profit on revaluation of assets& liabilities Profit on revaluation of assets& liabilities Profit on forfeiture & reissue of forfeited shares Profit on forfeiture & reissue of forfeited shares Profit on redemption of debentures at a discount Profit on redemption of debentures at a discount Profit earned by a company prior to its incorporation Profit earned by a company prior to its incorporation Capital reserve is shown in liability side of b/s under the head ‘reserve and surplus. Capital reserve is shown in liability side of b/s under the head ‘reserve and surplus.

Difference b/w Res. Cap. & Capital Reserve Serial no. Basis of difference Reserve capital Capital reserve 1meaning Portion of uncalled capital Created out of capital profits 2resolution Special resolution No need of resolution 3amount Which has not been recieved Which has already been recd. 4 a/cting treatment No treatment Shown in b/s 5use Can be called up at the time of liquidation. Can be used to meet cap.losses.

Preliminary expenses Expenses incurred on the formation of a company aretermed as preliminary exps.These include- Expenses incurred on the formation of a company aretermed as preliminary exps.These include- Expenses on preparation & printing of co.documents. Expenses on preparation & printing of 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 prospectus. Exps. On preparation,printing & issue of prospectus. Underwriting commission. Underwriting commission. Cost of preliminary books &common seal. Cost of preliminary books &common seal.

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