CHAPT 9

Company Accounts--

Accounting for Share Capital

LEARNING OBJECTIVES
understand:
would enable students to
Chapter
The study of this 9.1
Meaning and
Characteristics (Features) of a Company 9.2
(Joint Stock Company)
Difference between
Partnership and Company 9.3
Types of Companies Public Company 9.5
Person Company, Private Company and
Difference among One 9.5
Incorporation ofa Company 9.7
Meaning of Share Capital 9.7
Types or Classes of Shares 9.9

Difference between
Preference Shares and Equity Shares 9.19
and at Premium
Accounting of Issue of Shares for Cash at Par 9.30
Oversubscription of Shares 9.43
Undersubscription of Shares 9.49
Calls-in-Advance
Accountingof Cals-in-Arrears and 9.58
Other than Cash
Issued for Consideration
Accounting of Shares Shares
9.64
and Reissue of Forfeited
Procedure and Accounting ofForfeiture 9.103
Allotment
Concept ofPreferential 9.103
Placement of Shares 9.104
Concept of Private
Concept of Sweat Equity 9.104
Stock Option Plan (ESOP)
.Concept ofEmployees

cOMPANY
CHARACTERISTICs
(FEATURES) OF A
MEANING AND

Meaning and Definitions

and registered
is an association
of persons formed
stock company) existence and has a separate
A company (or a joint not having physical has
Act. It is a legal person (shareholders). It normally
under the Companies from its members
separate members
an artificial person which are known as
legal entity, i.e.,divided into units called shares, the o w n e r s of of the company,
a share capital
of a member
does not affect continuity
death
or shareholders.
Insolvency or becomes insolvent or
dies.
continues e v e n if a member(s)
Le., the company Company Law."
under this Act or any previous
means a company
incorporated of the Companies Act, 2013
2(20)
"Company Section

with a perpetual succession

created by law having separate entity -Prof. Haney
ertificial person,
A company is
an

and a common seal.

 9.2 Double Entry Book Keeping--CBSE XII

Characteristics (Features) of a Company

(i) Incorporation: A company is an artificial person created by the process of law, i.e., the

Companies Act.
(ii) Separate Legal Entity: A company is an artificial person having a legal entity separate
from its shareholders
(iii) Artificial Person: In the eyes of law it is an artificial person. It can Own property, enter
into contract, conduct business, sue or be sued for its debts and actions.
is not
(v Perpetual Existence: A company has a perpetual succession, i.e., its existenceThe life
affected by the death, lunacy or bankruptcy of its members or shareholders.
of a company comes to an end, only by winding up through the process of law.

(v) Limited Liability: Liability of its membersislimited to the value ofshares subscribed
by them or amount guaranteed to be paid at the time of winding up in the case of
companies limited by guarantee. However, in case of companies incórporated with
unlimited liabilities, liability of members is unlimited.
(vi) Transferability of Shares: Shares of a company are freely transferable in the case of
companies listed on a Stock Exchange. In the case of unlisted companies and private
-

companies, it is regulated by Articles of Association of the company.

(vii) Management and Ownership: A company is not managed by all the members but by their
elected representatives called Directors. Thus, management and ownership are separate.
(vii) Common Seal: A company may or may not have a common seal. If it has a common
seal, it is affixed to all the important documents of the company.
Difference between Partnership and Company (Woint Stock Company)
Basis Partnership Company (Joint Stock Company)
1 Mode of Formation Itis setup by an agreement among the partners. It is set up by registration under the Companies
Registration is not compulsory under the Indian Act, 2013 or under any previous Companies
Partnership Act, 1932. Acts
2Regulatory Act The Indian Partnership Act, 1932 applies. The Companies Act, 2013 applies.
N o . of Members Minimum number of partners is 2and maximum In the of
50 as per Section 464 of the
case public company, minimum
Companies Act, | number of members is 7 without any maximum
2013 and Rule 10 of
Companies (Miscellaneous) limit. A
private company must have at least
Rules, 2014. 2 members but not more than 200
excluding
its present past
or
employee members.
One Person Company has only one member.
Liability of the partners is unlimited, joint and
ALiability Liability of the members is limited to the
several.
amount of shares held by them or amount
guaranteed to be paid on winding up in case
of Companies Limited by
guarantee. However,
in the case of companies with unlimited
liability,
liabilities of members is unlimited.
5Pistribution of Profits are distributed as per the terms of the The Board of Directors decide how
Partnership Deed or equaly if Partnership dividend is to be paid. Interim Dividend
much
Profnts is
Deed does not exist. declared by the Board of Directors while
Proposed (final) Dividend is declared (approved)
by the shareholders.
 Chapter 9. Company Accounts-Accounting for Share Capital 9.3

Audit of books of account is not mandatory. Audit of books of account is mandatory.

6.Audit
Business may be managed by all the partners or | Business is managed by the directors who are
7 Management elected by the shareholders.
any of them acting for all.
Transfer of Shares Apartner can transfer his profit share to other Except in case of unlisted and private
8 person as is provided in the Partnership Deed or companies, transfer of shares is notrestricted
with the consent of all the partners.
9. Business Apartnership can carry on any business, if all A company can carry on only that business
the partners agree. which is permitted by the Objects Clause of
its Memorandum of Association.
0. Winding up Apartnership maybe wound upbyan agreementA company can be wound up only by the
orby an order ofthe court.In case thefim is unable process prescribed in the Companies Act, 2013.
to pay its debts, the Insolvency Act will apply.

HStability of the Itis affected by death, retirement or insolvency Shareholder's death, insolvency or transfer of
Business of partners. shares do not affect continuity ofthe company.