Issue of Shares

A company may issue two broad classes of shares: Equity shares, which carry voting rights and a variable, residual claim on profits (dividend only after preference dividend, if any, is paid), and Preference shares, which carry a fixed rate of dividend and priority over equity shares both for dividend and for repayment of capital on winding up, but ordinarily no voting rights.

Share money is usually collected in stages: Application (on applying for shares), Allotment (once shares are allotted), and one or more Calls (First Call, Second and Final Call, etc.), as decided by the Board. Shares may be issued:

• At par — at exactly the face (nominal) value.
• At a premium — above face value; the excess is credited to a Securities Premium Account (governed by Section 52 of the Companies Act, 2013), which is a capital reserve usable only for specified purposes (e.g. issuing bonus shares, writing off preliminary expenses/discount on issue of debentures, or providing for premium on redemption).
• For consideration other than cash — e.g. to acquire a running business or a specific asset, where shares are issued directly to a vendor instead of cash passing through the usual application-allotment-call route.

Illustrative pattern of entries (issue at par with allotment and one call):

1. Bank A/c Dr. (application money received) — To Share Application A/c
2. Share Application A/c Dr. — To Share Capital A/c
3. Share Allotment A/c Dr. — To Share Capital A/c
4. Bank A/c Dr. (allotment money received) — To Share Allotment A/c
5. Share Call A/c Dr. — To Share Capital A/c
6. Bank A/c Dr. (call money received) — To Share Call A/c …