Ch 5Accounting for Share Capital — Class 12 Accountancy, concept-first.

After the sole proprietorship and the partnership, the company is the third — and most evolved — stage in the growth of a business organisation.

A company is not just a group of people pooling money for a common goal. Legally, it is an artificial person — created by law, invisible and intangible, but with a distinct identity of its own.

Companies are classified in two main ways: by the liability of their members, and by the number of members.

A company is an artificial person — it cannot earn its own capital the way a natural person can. Instead, it must raise funds from many individuals.

A company, being an artificial person, cannot generate its own capital. It must collect funds from many individuals, called shareholders. The total amount contributed by them is the share capital.

A share is the smallest unit into which a company’s total share capital is divided. If you own one share, you own a fractional part of the company’s capital.

Preference shares are a distinct class of shares defined by Section 43 of The Companies Act, 2013. The key idea is that these shares carry two specific preferential rights — one over dividends and ano…

Equity shares are the most common type of shares issued by a company. The legal definition comes from Section 43 of The Companies Act, 2013, which defines an equity share simply as any share that is n…

The process of collecting share capital in instalments is a distinctive feature of company financing. A company does not have to demand the full face value of a share at once.

When a company issues shares to the public, the total amount payable on each share is collected in instalments — typically on application, allotment, and subsequent calls.

When a shareholder fails to pay the amount due on allotment or on any call on the due date, that unpaid amount is called Calls in Arrears (also known as Unpaid Calls).

When a company makes calls on its shares, shareholders are expected to pay only when the call is due. But sometimes, a shareholder pays part or the whole of the amount of a call before it is actually…

When a company receives more applications for shares than the number it offered to the public, this situation is called over subscription.

Under subscription occurs when the number of shares applied for by the public is less than the number of shares the company offered for subscription. In other words, the issue is undersubscribed.

When a company is financially strong and well-managed, its shares are often issued at a premium — that is, at a price higher than the nominal (face) value.

When a company issues shares at a price lower than their face value (also called nominal or par value), it is called an issue of shares at a discount.

When a company buys assets (like land, a building, or machinery) from a vendor, it may not pay cash. Instead, the vendor agrees to accept fully paid shares of the company as payment.

When a shareholder fails to pay any instalment due — allotment money, call money, or both — the company has the right to cancel that shareholder's allotment and treat the amount already received as fo…

When a company forfeits shares, the directors have two options: they can either cancel those shares or reissue them.

The key terms introduced in this chapter, with a short meaning for each.

- A company raises funds by issuing equity shares (ownership capital, no fixed dividend) and preference shares (fixed dividend, priority on repayment). The total amount raised is called share capital.