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    Corporate Accounting, Semester 2, Delhi University Bcom Hons

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    Corporate Accounting, Semester 2, Delhi University Bcom Hons

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    20 views534 pages

    Corporate Accounting

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    Kartik
    Corporate Accounting, Semester 2, Delhi University Bcom Hons

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    1410 Dr. Rakesh Kumar Ms. Simranjeet Kaur Dr. Rajesh Kumar ‘Mr. Bunny Mrs. Rimi Jain Mis. Jasmine ACKNOWLEDGEMENT PGDAY. College ‘Sri Venkateswara College Shivaji College Sri Aurobindo College PODAY. College (Evening) Shri Guru Nanak Dev Khalsa College CHAPTER 1 ‘¢ INTRODUCTION CHAPTER 2 ‘¢ ISSUE, FORFEITURE AND REISSUE OF SHARES CHAPTER 3 ‘© ISSUE OF RIGHTS AND BONUS SHARES CHAPTER 4 ‘¢ EMPLOYEE STOCK OPTION PLAN CHAPTER S '@ UNDERWRITING OF SHARES AND DEBENTURES CHAPTER 6 ‘© REDEMPTION OF PREFERENCE SHARES. CHAPTER 7 @ BUY-BACK OF SHARES CHAPTER 8 ‘@ ISSUE AND REDEMPTION OF DEBENTURES CHAPTER 9 ‘@ FINANCIAL STATEMENTS OF COMPANIES ‘CHAPTER 10 ‘@ CASH FLOW STATEMENT CHAPTER 11 '¢ AMALGAMATION. ‘CHAPTER 12 ‘¢- INTERNAL RECONSTRUCTION, Page 5 Ww naa un 2a a4 4a sa 62 74 a1 oa soa nt pi 18 ‘Ms, Meenu Gupta ‘Ms, Manju Bhatia Ms, Sunita Ms, Savita Sachdeva Dr. Ashok Aggarwal Sh. VP. Jaln Dr. $.C. Panda Ms. Richa Ms, Shikha Sharma ‘Ms. Vandana Dahiya ‘Ms, Nikun} Aggarwal Sh, Ashok Gupta Sh, Chetan Negi Dr. NK. Aggarwal Dr. K.B. Gupta Ms, Vrinda Kapoor Ms, Nidht Gupta Ms, Soma Garg Sh, Arun Zulka ‘Ms, Arushi Zareen ‘Ms. Anu Jain Sh. Satish C. Bhatia Dr. Pakeeza Samed Dr. Shivant Abrol Dr. NK. Oberot Sh. VK, Batra Sh. Bhupinder Kumar Ms. N. Tiwarl Ms. Neesja Arya Ms. Shikha Gupta Ms. Soumya Jain Dr. Ramesh Kumar ‘Mrs. Kusum Sh, Himanshu Sh. Arunesh Chaudhri ACKNOWLEDGEMENT ‘Sri Guru Gobind Singh College of Commerce Sri Guru Gobind Singh College of Commerce Daulat Ram College IP Coltege Dyal Singh College Dyal Singh College Satyawati College (Eve) Satyawati College (Eve.) Shaheed Bhagat Singh College Shaheed Bhagat Singh College ‘Shaheed Bhagat Singh College PGDAN. College PGDAN. College School of Open Learning School of Open Learning Janaki Devi Mahavidvalaya Gargi College Maharaja Agrasen College Maharaja Agrasen College Bharaii College Aditi Mahavidyataya Zakir Husain College (E.) Zakir Husain College (E:) Zakir Husain College (Mor) Swami Shraddhanand College Aurobindo College (E) Delhi College of Arts and Commerce SPM. College College of Vocational Studies Keshav Mahevidvalaya Shaheed Sukhdev Singh College of Bus. Studies Shaheed Sukhdev Singh College of Bus. Studies Lady Shri Rar College Ramanujan College Kirori Mal College Dr. Sunil Dr. Deepak Sehgal Dr. Sucheta Gauba Ms. Patinder Kaur Ms, Shastha ‘Ms, Anjula Bansal Dr. Renu Gupta Dr. Rajendra Kumar Dr. KM. Bansal ‘Mz. Deepak Balant ‘Ms, Lavieen Gupta Dr. Rakesh Harsh Khanna Dr. RK. Sah Dr. Sandeep Dr. Alok Kumar Sh. Amit Kumar Ms, Amita Muturant Ms. Priyanka Sahni Ms, Radhika Goel Ms, Anupreet Kaur Ms. Shikha Gupta Ms. Arpit Paul Dr. Mahadev Prasad Meena Ms. Meenu, Sh. Rajinder Kumar Dr. Deepak Srivastava Ms. Priyanka Aggarwal ‘Ms, A. Porchelvi ‘Ms. Sonla Dhingra Sb. Anil Kumar Verma Ms. Manmeet Dr. Rita Vats Dr. Awadesh Dr. Surinder Singh Solanki ACKNOWLEDGEMENT 1 ‘Deen Dayal Upadhyaya College Deen Dayal Upadhyaya College Lakshmibai College Hans Raj College Hans Raj College Kalindi College Jesus & Mary College Rajdhani College BR. Ambedkar College Sri Aurobindo College (Day) Hindu College Tuior Twor Shri Rem College of Commerce Acharya Narendra Dev College ‘Shri Ram College of Commerce Maharaja Agrasen College Jesus and Mary College Maitreyi College S.G.TB Khalsa College S.G.TB, Khalsa College Shaheed Bhagat Singh College Sri Venkateswara College Bhim Rao Ambedkar College Deshibandhu College Shyan Lal College (Evening) Keshav Mahavidvalaya Shri Ram College of Commerce Lakshmibai College PGDAY College (Evening) PGDAY. College (Evening) S.GND. Khalsa College Ramm Lat Anand College PGDAY. College (Evening) PGDAY. College 12 CoNTENTS CHAPTER 13 '¢ LIQUIDATION OF COMPANIES CHAPTER 14 ‘ACCOUNTS OF HOLDING/PARENT COMPANIES [Applicable for students registered with Regular Colleges, Non Collegiate Women’s Education Board and School of Open Learning] B.Com. (Hons.): Semester-I Paper BCH 2.2: CORPORATE ACCOUNTING Course Contents UNIT 1: Accounting for Share Capital and Debentures Introduction to issue of shares and debentures. Issue of rights and Bonus shares. ESOPs and buyback of shares, book building, Underwriting ofshareand debentures, Redemption of Preference shares, Redemption of debentures: sinking/debenture redemption fund, open market purchase and conversion of debentures Relevant AS and IND-AS as applicable. UNIT 2: Financial Statements of a Company Preparation of financial Statement of Joint Stock companies as per schedule II Parts T & II (Division [in detail and Division IL only on overview) Relevant AS and IND-AS as applicable UNIT 3: Cash Flow Statements Meaning, Usefulness, Preparation of a cash flow statement inaccordance with Accounting. Standard 3 (Revised) issued by the Institute of Chartered Accountants of India. (Only indirect method), Limitations of cash flow statement. Relevant AS and IND-AS as applicable UNIT 4: Amalgamation, Reconstruction and Liquidation of Compantes Concept of Purchase Consideration. Accounting for Amalgamation of Companies(excluding inter-company transactions and holdings) and external reconstruction Accounting for Internal Reconstruction (excluding preparation of scheme for internal reconstruction) Accounting for liquidation of companies, introduction to the Insolvency and Bankruptcy 143 ary SyLLARUS Code, 2016 and other relevant provisions. Preparation of Statement of Affairs as per the format prescribed by the Act and Deficiency Account. Relevant AS and IND-AS as applicable UNIT 5: Accounts of Helding Companies/Parent Compantes Preparation of consolidated balance sheet with one subsidiary company. Relevant AS and Ind AS as applicable. ie: See Soe INTRODUCTION LEARNING OBJECTIVES: After siudying this chapter, the students will be able to understand : > Definition and characteristies of « company Kinds of companies Nature and types of shares and kinds of share capital Meaning of prospectus, red-herring prospectus and shelf prospectus Books of account and financial statement Provisions as regards allotment of shares and issue of shares tothe public Format of the Balance Sheei as per Schedule Il of the Companies Act, 2013 Distinction between equity shares and preference shares, et. vyyvyyyy The word ‘company’ ordinarity means a group of persons associated for some common Purpose such as business, sports, esearch, charity etc. A partnership firm may styl itself 4 ‘company;eg,, Banwari Lal Murari Lal & Company’ But this company is nota company under the Companies Act, 2013. The words “& Company" in case of a partnership firm simply indicate thas there are other persons in their association apart from Banwari Lal cand Murari Lal In this book the word ‘company’ has been mainly used in the sense of «company incorporated or registered under the Companies Act. A company usualy the word Limited’ as part ofits name, e, Tata Motors Limited, Infosys Limited, Reliance Industries Limited, GAIL Limited, Hindustan Unilever Limited, Tata Steei Limited, Bharat Airtel Limited, DLF Limited ete Limited Liability Partnership must also be registered under the Limited Liability Partnership Act, 1908, A company is a body corporate: Body corporate is an entity incorporated or registered under the companies or any other specific Act of Parliament or State Legislature: A body corporate has perpetual succession, a common seal and a legal entity distinct from its members a] axtRopucrion MEANING OF CORPORATE ACCQUNTING “a iting for orporate Accounting i a branch of accountng which deals with the acounting for Crore pmcparaion and presentation of ie nancial statement, analsband inter pretation of financial statements and accounting for specific events like amalgamation and reconstruction, ‘DEFINITION OF COMPANY: According to Section 2(20) of the Companies Act, 2013, “company means a company eared ander tus Actor under any other previous company aw" However, this definition does not reveal the characteristics of « company. In simple words, a company js an association of persons who contribute money to a common corpus, called share capital, to carry on its activities Its also called a joint stock company. ‘According to Lord Justice Lindley, ‘By a company is mteant an association of many per- Sons who contribute money or money's worth fo a common stock and employ it in some ‘rade or business, and who share the profit and loss arising therefrom. The common Jock so contributed is denoted in money and is the capital of the company. The persons seek cee tor towhomt belongs are meters. The proportion of capita to which tach member is entitled is his share, Shares are always transferable although the right fo transfer thera is often more or less restricted.” This definition gives a clear description of acompany. when Jef Justice Marshal of U.S.A. emphasized the corporate personality of a company Cae ray a apeson arc nib mangle end extng an he yes of lan: Being a mere creation of lw, it possesses only the properties which the char ter of its creation confers upon it either expressly or as incidental to its very existence. ; on of a company giving its main char. Haney has given more comprehensive definition of a company gi rm Sette, Acoring him. "A company& en icopuratdasoeton, hich san anificial person created by law, having a separate enti, with a perpetual suecession an. a common seal” ‘The following are the features or characteristics of a company (J) Incorporated Assocation A company, under the Companies Act, comes into exis {once when a group of persons get themselves reyistered asa company.A company Gomes igo existence ftom the date mentioned inthe Certificate of Incorporation. ‘Thus aregsteredcornpany mustbeincorporatedor registered under the Companies det Registration ereates aint stock company. A campany is a body corporate seperate Legal Entity :A company has alegal entity distinct from its members. A Oe crmership has noctitence aed rom ils members. A company i alegalpersn Palual entity Therelore. itis capable of owning and disposing of property in its are ree gh sot and be sued nits ovn sine, Sabmanv, Sloman & Co Limited is leading case on this pont. INTRODUCTION 13 (3) Perpetual Succession: company has perpetual succession. [tis capable of serving bbeyond the lives ofits members. Membership of the company may keep chang. ing from time to time, but that does not affect company's continuity. The death or insolvency of individual members does not, in any way, affect the corporate existence of the company, “Members may come and go but the company can go con for ever’. (Gower-Modern Company Law) Limited Liability: The company, being a separate legal person, is the owner of the assets and is liable to pay its liabilities. Members are not owners of the company’s, assets nor liable for its debts, In case of limited liability companies, the members’ liability is limited to the extent of the nominal value of shares held by them or the amount guaranteed by them. a (5) Common Seal : A company is not a natural person. A company is an artificial per- son and exists only in the contemplation of law. It acts through its agents, called directors, The company is bound by only those documents which bear its signature, Common seal acts as a substitute for signature of the company, (6) Transferability of Shares : Section 44 of the Companies Act, 2013 provides: The share or debentures or other interest of any member in a company shall be mov able property, transferable in the manner provided by the articles of the com- pany.” Shares of a public company are freely transferable. Transferability of the shares provides liquidity tothe investors. It also provides stability to the company. However, certain restrictions are imposed on transferability of shares in case of private companies, KINDS OF SRMPANIES Scar 5%, ‘Companies may be classified from different points of « as follows : Kinds of Companies according to the Mode of Incorporation ‘Acompany may be incorporated under the special Act of legislature or under the Com- panies Act. The companies which are incorporated under the special Act of Central or State legislature are called ‘statutory’ companies such as Reserve Bank of Indi, Life Insurance Corporation, Unit Trust of India etc. The companies whichare registered under the Companies Act, 2013 or was registered under any earlier Companies Aets are known as Registered’ companies. It may be noted that companies which were incorporated un der a special charter granted by the King or Queen of England are known as chartered companies, These include East India Company incorported i 600, Such companies are no longer in existence in India Kinds of Registered Companies on the basis of Number of Members On the basis of number of members a registered company may be (1) private company, or (2) public company: 1, Private Company : According to Section 2(68) of the Companies Act, 2013, private company means a company which satisfies the following conditions i INTRODUCTION (@) Minimum paid up capital : The company must have a minimum paid up capital as may be prescribed. The requirement as to minimum paid up ‘capital has been dispensed with by the Companies (Amendment) Act, 2015, asthe rules do not prescribe any minimum paid up capital (®) Restriction on transferabiltty of shares: There must be some restrictions ‘on the right of its members to transfer their shares in the company. (o) Restriction on number of members : The number of members of the Oe exept in exe of One Posen Cagany, st be Erte 19200 except the persons who are in the employment of the company and persons Atho were in the employment of the company and were members of the ‘company While in that employment and continued to be member after the ‘einployment ceased. Joint holders of shares are treated as single meraber for this purpose. ion on any invitation to the public to subscribe for any securt on ise ompany mst paki any station othe pub o subscribe for any shates in or debentures or any other securities of the company. The ‘company should also prohibit any invitation or acceptance of deposits from persons other than its members, directors or their relatives. A private company limited by shares must have articles containing aforesaid restrictions, imitations and prohibitions, ‘The minimum number of members required to form a private company is 1wo.A private company must add the word, “Private” dr any abbreviation thereof i 2. Publle Company. According to S.2(71) of the Companies Act, 2013, “Public Company” means a company which— (@) is not a private company; and (& has a miniswum paid-up capital as may be prescribed. The rules do not prescribe any minimum paid up capital. The requirement as to minimum paid up capital has been dispensed with by the Companies (Amendment) Act, 2015. However, a private company shall be deemed to be a public company which is @ subsi- diary of a company which is not a private company. “The minimum number of members required to form a public limited company is seven. ‘There is no restriction on maximum nurnber of members. Kinds of Registered Companies on the basis of Liability of Members On the basis of the liability of the members, the companies may be(1) companies limited by shares or (2) companies limited by guarantee or (3) unlimited companies. Each of these companies may be private company or public company: 1. Companies Uimited by shares: A company having the liability ofits memberslimited by the memorandum to the amount, if any, unpaid on shares respectively held by INTRODUCTION 1s them is termed as “a company limited by shares (S.2(22)} Thus, such companies must have a share capital. Most of the companies in India are ofthis type . Companies limited by guarantee : A company’ having the liability of is members limited by the memorandum tosuch an amount asthe members may respectively tundertake by the memorandum to contribute o the assets ofthe company in the event of ts being wound upistermedl “a company limited by guarantes"[S.2(21}} In the case of a company limited by guarantee, the articles shall state he number cof members with which the company i to be registered . Unlimited companies: A company not having any lint on the liability of its mem- bers i termed ‘an unlimited company” [S, 2(22)}. Such companies are rare these days. HOLDING AND SUBSIDIARY companuns According to S. 2(46) of the Companies Act, 2013, “holding company in relation to one ‘or more other companies, means a company of which such other companies are sub- sidiary companies." For the purposes of this clause, the expression “company” includes any body corporate, According to S, 2(87) of the Companies Act, 2013 “subsidiary company” or “substdiary”, in relation to any other company (that isto say holding company), means a company in relation to which the holding company— () controls the composition of the Board of Directors; or (i exercises or controls more than: one-half ofthe total voting power either ofits own oo together with one or more of its subsidiary companies. However, such class or classes of holding companies as may be prescribed shall not have layers of subsidiaries beyond such number as may be prescribed ‘Subsection (87) of S.2 further provides as follows {@) A company shall be deemed to be & subsidiary company of the holding company evenif the contol referred to in (and (i) aboveis of another subsidiary company of the holding company. (2) The composition of a company's Boardof Directorsshallbe deemed tobe controlled by another company if that other company by exercise of some power exercisable by it at its discretion can appoint or remove all or a majority of the directors. (©) The expression “company” includes any body corporate for the purposes of 8.208, anit :! (@) “Layer" in relation to a holding company means its subsidiary or subsidiaries, Associate Company ‘According to section 2(6) of the Companies Act, 2013, an associate company, in relation to another company, means a company in which that other company has a significant influence but which is not a subsidiary company of the company having such influence rh vis | | | | | | i | | | | | | | | | | | | | | | =—— 16 IWTRODUCTION and includes a joint-venture company. Significant influence here means control of at least 20% of the total voting power or control of or participation in business decisions under an agreement. Foreign Company A company registered under the provisions of the Companies Act, 2013 or under the provisions of earlier Comopanies Acts san Indian Company. According to S. 2(42) of the Companies Act, 2013, Foreign company means any company or body corporate incorpo- rated outside India which — (a) has a place of Business in india whether by self or through an agem, physically or through electronic mode; and (0) conducts any business activity in India in any other manner. Government Company According to S. 2(45) of the Companies Act, 2013, Government company means “any company in which not less than fifty-one per cent of the paid up share capital is held by the Central Government, or by any State Government or Governments, or partly by the Central Government and partly by one or more State Governments and includes a company which is a subsidiary of a Government company." Listed Company and Unlisted Company Listed company means a company whose shares are ‘accepted for trading on the rec- guise stock exchange() suchas National Stock Exchange or Bombay Stock Exchange. Unlisted company is a company which is nota listed company. Small Company According to S. 2(85) of the Companies Act, 2013, “Small Company” means a company, other than a public company,— (@ paid up capital of which does not exceed 50 lakh rupees or such higher amount as may be prescribed which shall not be more than 10 crore rupees; and (@ tumover of which as per profit and loss account for the immediately preceding financial year does not exceed 2 crore rupees or such higher amount as may be prescribed which shall not be more than 100 crore rupees. However, the following companies are not treated as “small company" {@) @ holding company or a subsidiary company: (2) a company registered under section 8; or (0 a company or a body corporate governed by any Special Act. ‘One Person Company “One Person Company" means a company which has only one person as a member {S.2(62)] Its name must end with the words “OPC’. According to the rules, only a natural INTRODUCTION 7 person, who is a citizen and natural person, can form One Person Company. A person can form one such company. If the membership of a private company falls below two, then it docs not automatically become One Person Company. NATURE ADID TYPES OF SHARES. -<) Meaning of Share Capital of a company is divided into units of small denomination and each such unit is called ‘Share’. According to Section 2(84) of the Companies Act, 2013, “Share means share in the share capital of a company and includes stock." In the case of Commission of Income Tax v. Standard Vacuum Ot! Company (1966) | Comp. LJ. 187 (SC), the Supreme Court defined a share as follows “By a share in a company is meant not any sum of money but an interest measured bya sum of money and made up of diverse rights conferred on its holders by the articles of the company which constitute a contract between him and the company." According to Lindley on Companies, “A share in a company signifies a definite portion of the capital of the company." But shareholders are not part owners of the company as a. company is different from the totality of shareholders, Share is a movable property. It is transferable in the manner provided by the articles ofthe company. Itis incorporated. inits nature and it consists merely of bundle of rights and obligations. Everyone of these rights and obligations is created by a statute which also define their extent and scope. The persons wha hold the shares in their name are called shareholders. ‘Stock in a company means, ‘a bundle of fully paid up shares put together for conve- rience so that it may be divided into any amount and transferred into any fractions and. ssub-divisions without regard to the original face value of the shares.” Thus, stock must be fully paid up and it can be broken up into any division. Fite mteena Difference between Share and Stock ‘The following are the points of difference between share and stock |. Paid-up amount: Shares may be fully paid up or partly paid up, but stock is always fully paid up. 2. Nominal valve: Shares have nominal value but stock does not have nominal value. 3. Fractions: Shares cannot be issued in fractions, whereas stock can be issued in fractions, 4, Distinctive numbers: Shares bear distinctive numbers except when they arcissued in demat form, whereas stock does not have any distinctive number. Denomination: Shares of a company are usually of equal denomination but stock may be issued in unequal amounts. 6. Original issue: Initially a company ean issue shares only and not stock. Acompany: ean convert fully paid up shares into stock later on. as mTRODUCTION 1. Company: Shares can be issued by public or private companies. Bt stock can be issued by a public company only. ‘Types of Shares Before passing of the Companies Act, 1956, the shares used to be of three types. These sere) orainary shares preference shares and (6) deere sharen, The Companies ct, 1988 initially allowed the companies to issue (a) equity shares an ference ie ae eee ong Slowed a public company and a private company limited by shares to issue shares wit aoe cights ao, According to Section 43 ofthe Companies Act, 2013 a.com pany may issue following types of shares: (2) Equity shares (with voting tights; oF : i) with differential rights as to dividend, voting or otherwise in accordance a aes res ana subject to such conditions as may be presets (B preference shaves. reference 1s, the shares of a company are of two types:() Equity Shares and (i) P Free ery sarescan further be dvidedino (0 Equity Shares wih voting Tights and (0) Equity Shares with differential rightsas regards dividend and voting. ‘These are discussed below Preference Shares Preference shares are those shares which carry the following two rights: {e) Payment of fixed amount of dividend or dividend at a fixed rate before any divi- Feta aad onthe equity shares. This rights not to dividend but to preferential treatment if and when dividend is distributed. (® Return of capital on the winding up ofthe company before that of equity shares Holders of preference shares are called preference shareholders. Preference shares may be of the following types ‘and Non-Cumulative Preference Shares: When dividend oapreferenceshares in any year on account of no profit in that year, or otherwise, and arrears Srack dividend are accumulated and paid out of the profits of subsequent years, the preference shares are called cumulative preference shares. The holders of equity shares trent pad any dividend until the arrears of dividend ae pad to cumulative preference Shareholders, Unless otherwise stated i the artes, the preference shares are assumed, to be cumulative, Where the articles provide that dividends on preference shares wi rot accumulate, such reference shares recalled nen-urmolatve preference share ‘and Non-participating Preference Shares: Preference shares are calle carr creme saree they catty ether o both he folowing ght (@ Where the article or memorandum of the company confer on holders of prefer- ance shares a right to participate further in the distribution of the surplus profits, IntRopucTiON 19 «after the payment of fixed amount of dividend on preference shares and on equity shaves ( Where the articles or memorandum of the company confer on the preference shares aright to claim toa certain extent out of the surplus assets of the company ‘on its winding up, after repaying preference share capital and equity share capital ‘The holders of preference shares are assumed to be non-participating unless otherwise stated in the articles. In Re, Isle of Thanet Electsle Supply Co. (1949) 2 AlIER 1060, it was hheld that a right to participate in surplus profits conferred on the holders of the prefer tence shareholders does not entitle them to a claim in the surplus assets in the event of «winding up of the company. Redeemable and Irredeemable Preference Shares: Shares which can be redeemed by the company after a fixed period or after giving notice at any time at the will of the company are called redeemable preference shares. redeemable preference share are those which cannot be redeemed during the life ime of the company. Aa per 8. 8 of the Companies Act, 2013, no company can issue irredeemable preference shares. Further, no company can issue preference shares which are redeemable after the expiry of 20, years. However, a company may issue preference shares for a period exceeding 20 years to finance infrastructure projects. In such a case the tenure should not exceed 30 years. Convertible and Non-convertible Preference Shares: The preference shares which can be converted into equity shares are called convertible preference shares and the pre- ference shares which cannot be converted into equity shares are called non-convertible preference shares. Equity or Ordinary Shares Equity or ordinary shares are those shares which are not preference shares. Dividend is paid to equity shareholders after payment of dividend to preference shareholders. Simi- larly in the event of winding up they rank after preference shares. The rate of dividend isnot fixed on equity shares, Holders of equity shares are called equity shareholders. An ‘equity shareholder is entitled to vote on all matters affecting the company, Equity Shares with Differential Rights As stated earlier the Companies (Amendment) Act, 2000 has allowed a company to issue ‘equity shares with differential rights as to dividend, voting or otherwise in accordance with such rules and subject to such conditions as may be prescribed. A company as per Companies (Share Capital and Debentures) Rules, 2014, can issue these shares if certain conditions are satisfied. The conditions are as follows (@) The articles must contain a provision for issue of these shares. (B) These shares shall not exceed 26% of the total post issue pald up equity share capital (©) Approvalofthesharcholdersthrough ordinary resolutionis necessary toissue such shares. In case of listed company approval of shareholders is necessary through postal ballot. (q) The company must have distributable profits as per the Companies Act for three financial years preceding the year in which it is decided to issue such shares, | | | 1.10 INTRODUCTION (©) The company has not defaulted in filing annual accounts and annual returns for the three years preceding the issue of such shares. () The company has not defaulted in repayment of deposits or redeem its debentures or preference shares on the due date (@) The company has not defaulted in payment of interest on deposits or debentures © cry dividend on preference shar ox delared dividend ch cbr. (#) The company has not defaulted in payment of any term loan from any public ” Travcl nto o scheduled bank or interest onthe loan (9 The company has not defaulted in payment of dues to employees or crediting any (> Jour nestor Education and Protection Fund tthe Cerra Govern () The company has not been convicted of an offence under the SEBI Act, Securities Contracts (Regulation) Act or FEMA Act. (B The notice ofthe meeting at which resolutions proposed to be passed is accompa nied by an explanatory statement containing, inter alia, the percentage of voting right which the equity share capital with differentia voting right shall carry to the total voting rights of the aggregate equity share capital Tata Motors Limited has issued Equity Shares with Differential Voting Rights. MEANING AND TONDS OF SHARE CAPTTAL > The Companies Act, 2013 does not define share capital, In ease of « company limited by, ‘hares, words “capital” and “share capital” are synonymous. As per ICAI Guidance ‘Note on terms used in Financial Statements, ‘Capital’ refers ‘to the amount invested in an enterprise by its owners, ep, paid up share capital in a corporate enterprise. The said Guidance Note defines ‘Share Capital'as the aggregate amount of money paid or credit- ed as paid on the shares and/or stocks of a corporate enterprise."Share capital may be () equity share capital and (ii) preference share capital. Equity shares constitute equity share capital and preference shares constitute preference share capital. Kinds of Share Capital According to Section 43 of the Companies Act, 2013, new issue of share capital shall be of two kinds only, namely (@ equity share capital— (0. with voting rights; or 1) with differential rights as to dividend, voting or otherwise in accordance (O Sn such ales aeuject such colons say be presrbel (8) preference share capital According to Section 43 ofthe Companies Act, 2013, "preference share capital” meansthat partoftheshare capital of hecompany which ulflsboth hefollowingequizements, namely (@) that as respects dividends, i earres ox will earry a preferential right to be paid a fixed amount or an amount calculated ata fixed rate; and wrrannerion an (@) that as respects capital, it carries or will carry on a winding up or repayment of capital, a preferential right tobe repaid theamount ofthe capital paid up or deemed tohave been paid up According to aforesaid Guidance Act, Preference Share Capital means “that part of the share capital of & corporate enterprise which enjoys preferential rights in respect of payments of fixed dividend and repayment of capital Preference Shares may alo have ful or partial participating rights in surplus profits or surplus capital” According to Section 43 of the Companies Act, 1956, “Equity share capital” means all share capital which is not preference share capital. Authorised Capital, Issued Capital and Subscribed Capital According to Schedule Hof the Companies Act, 2013, company is required to show for each class of share capital: (@) the number and amount of shares authorised; (8) the number of shares issued, subscribed and fully paid up, and subscribed but not fully paid up. 1. Authorised Share Capltal: According to S, 2(8) of the Companies Act, 2013, “authorised capital” or “nontinal capital” means such capital asi authorised by the memorandum of 4@ company to be the maximum share capital of the company. Itis the maximur amount which the company is, for the time being, authorised to raise, As per the Guidance Note fon terms used in Financial Statements, Authorised Share Capital’ means ‘the numtber and par value, of each class of shares that an enterprise may issue in accordance with its instrument of incorporation. This is sometimes referred as nominal share capital" For example, A Lid, is incorporated with an authorised capital of € 50,00,000 divided into 400,000 equity shares of& 10 each and € 1,00,000 preference shares of ® 10 each, Stamp

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