Meaning of a Company and Share Capital

A joint stock company is a distinct artificial legal person, created by law, having its own capital divided into a large number of small, transferable units called shares. Anyone who buys a share becomes a shareholder — a part-owner of the company — and the total capital raised in this way is called the share capital of the company. This chapter deals with how a company records, in its books, the actual issue of shares for cash — the whole cycle from inviting the public to subscribe, right through to shares being fully paid up (and, where a shareholder defaults, right through to forfeiture and re-issue) — a topic every commerce student on the Maharashtra HSC (MSBSHSE) Std XII Book-Keeping and Accountancy syllabus must be able to journalise confidently, since it is asked almost every year in some form.

What is a share? Under Section 2(84) of the Companies Act, 2013, a share means a share in the share capital of a company, and includes stock. A share is the smallest unit into which the total capital of a company is divided, and it carries a fixed nominal (face) value — e.g., a company may divide its capital into shares of ₹10 each, ₹100 each, and so on.

Why companies raise capital through shares. Unlike a sole proprietor or a partnership firm, a company can have an enormous number of owners scattered across the country, each contributing only a small amount. Issuing shares lets a company raise very large sums of money from the general public, while limiting each shareholder's liability to the amount unpaid, if any, on the shares held.

This chapter's accounting treatment is grounded throughout in the provisions of the Companies Act, 2013, even though the underlying journal-entry logic (Application → Allotment → Calls) is the same double-entry bookkeeping already studied for a sole proprietor's and a partnership firm's books.