COMPANY ACCOUNTS—ACCOUNTING FOR SHARE CAPITAL; CLASS XII ACCOUNTS FULL NOTES:

WHAT IS COMPANY?

"Company is an artificial person created by law having separate legal entity with perpetual succession and a common seal."

FEATURES/CHARACTERISTICS OF A COMPANY:– 

The main features of a company are:

1- Incorporation: A company is an artificial person stablished through the process of law such as Company Act, 2013 or any previous company law. 

2- Separate Legal Entity: A company having a separate legal entity from its shareholders.

3- Perpetual Succession: A company has a perpetual succession which means, it is not affected by death, lunacy (madness) or insolvency of its members and shareholders.

The life of a company comes to an end only by winding up through the process of law .

4- Limited Liability: Liability of its members is limited to the value of shares subscribed by them.

5- Common Seal: A company has a common seal, it means that it is affixed to all the important documents of the company such as MOA, AOA, Prospectus, etc.,

KINDS OF COMPANIES:–

Generally, companies are classified into following three categories:

1- Private Company: A private company is a company which includes the following;

 A. To restricts the right to transfer it's shares.

 B. The number of its members are limited upto 200.

 C. Prohibits any invitation to the public to subscribe for shares or any securities.

NOTE: The name of Private company using the word— Pvt. Ltd.

2- Public Company: A public company is a company which not a private company.         {Sec. 2(71)}

NOTE: i. A company must have at least 7 members and maximum have no limit.

ii. The name of Public company using the word—  Ltd.

3- One Person Company {Sec. 2(62)}: One Person Company is a company, incorporated as private company which has only one member. Its paid up share capital is not more than 50,00,000 and it's average annual turnover of 3 years should not exceed rs. 2 crores. 

              –: SHARES :–

        

Meaning- Total capital of a company is divided into small units such as — rs.10, rs.20,  rs.50, rs.100, rs.200, etc., Such small units is known as share.

For example, In a company, the total capital of rs. 10,00,000 divided into 10,000 units of rs.100 each. Then each unit of rs.100 is known as share.

In the above case, rs.100 is known as face value or nominal value of shares.

TYPES OF SHARES:- 

Mainly there are three types of shares:

1.  Preference Shares.

2. Equity Shares.

3. Sweat Equity Shares.

1. Preference Shares are the shares which carry the following two preferential rights: 

 i. Preferential right to receive dividend, before it is paid to equity shareholders, and

 ii. Rights to receive payment of capital on the winding up of the company before that of equity shares.

There are 8 types of preference shares:–

• Cumulative Preference Shares

• Non-Cumulative Preference Shares

• Convertible Preference Shares

• Non–Convertible Preference Shares

• Participating Preference Shares

• Non–Participating Preference Shares

• Redeemable Preference Shares

• Irredeemable Preference Shares

2- Equity Shares are those shares which are not Preference Shares.

SHARE CAPITAL:–

It refers to the amount that a company can raise by issue of shares.

Share capital can be classified into following categories:

• Authorised/Registered/Nominal Capital

• Issued Capital

• Subscribed Capital

• Called–up Capital

• Paid–up Capital

• Reserve Capital

SOME IMPORTANT QUESTIONS:-

Q. What is the meaning of "Issue of shares for purchase consideration other than cash"?

Ans. When a company issued its shares for purchasing the asset or running business instead of cash, is known as issue of shares for purchase consideration other than cash. 

Q. What do you mean by forfeiture of shares?

Ans. If a shareholder fails to pay any call/instalment then Company may cancel his shares. Such cancellation of shares is known as forfeiture of shares.

click to learn more important questions about share capital.

Full Description of Classes of Preference Shares