A Limited Company

A company form of organization is the third stage in the evolution of forms of organization. Its
capital is contributed by a large number of persons called shareholders who are the real owners
of the company. But neither all of them can participate in the management of the company nor
are considered desirable. Therefore, they elect a Board of Directors as their representative to
manage the affairs of the company. All the affairs of the company are governed by the
provisions of the Companies Act, 2013.
“a company is a person, artificial, invisible, intangible, and existing only in the eyes of law.
A company may be viewed as an association of persons who contributes money and uses it for
a common purpose. It is an artificial person having a corporate legal entity distinct from its
members (shareholders) and has a common seal used for its signature.
Features
Body Corporate: A company is formed according to the provisions of Law enforced from
time to time. Generally, in India, the companies are formed and registered under Companies
Law except in the case of Banking and Insurance companies for which a separate Law is
provided for.
• Separate Legal Entity: A company has a separate legal entity that is distinct and separate
from its members. It can hold and deal with any type of property. It can enter into contracts
and even open a bank account in its name.
• Limited Liability: The liability of the members of the company is limited to the extent of the
unpaid amount of the shares held by them. In the case of the companies limited by guarantee,
the liability of its members is limited to the extent of the guarantee given by them in the event
of the company being wound up.
• Perpetual Succession: The company is an artificial person created by law that continues to
exist irrespective of the changes in its membership. A company can be terminated only through
law. The death or insanity or insolvency of any member of the company in no way affects the
existence of the company. Members may come and go but the company continues.
• Common Seal: The company being an artificial person, cannot sign its name by itself.
Therefore, every company is required to have its seal which acts as the official signature of the
company. Any document which does not carry the common seal of the company is not binding
on the company.
• Transferability of Shares: The shares of a public limited company are freely transferable.
The permission of the company or the consent of any member of the company is not necessary
for the transfer of shares. But the Articles of the company can prescribe how the transfer of
shares will be made.
• May Sue or be Sued: A company being a legal person can enter into contracts and can enforce
the contractual rights against others. It can sue and be sued in its name if there is a breach of
contract by the company.

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Equity capital
The company sells its shares to the public. Primary Market: This is where a company gets
registered to issue a certain number of shares and raise money. Typical par values of an Indian
share can be Rs.1, Rs.2 & Rs.10. and are purchased in bulk or lots (100 shares)
A company can issue its shares either at par, at a premium, or even at a discount. The shares
will be at par when the shares are sold at their nominal value or face value. Shares sold at a
premium are sold more than the face value is the premium. And of course, shares sold at a
discount cost less than the face/nominal value. This means that when shares are issued at the
face value means when the issue price is equal to the face value then it is called the issue of
shares at par.
Typical par values of an Indian share can be Rs.1, Rs.2 & Rs.10. Any value is - a positive
whole number. Suppose a company ABC’s shares have a face value of Rs.2 per share. But
during its IPO, it decides to sell its shares at Rs.52 per share.
Premium = Selling Price – Par Value.
Premium = Rs.50 (52 – 2).
The company sells its shares to the public. The number of shares available for the issue is
limited as specified in the Memorandum of Association (MA). MA is a legal document
prepared by the company during its formation and registration.
Authorized capital: This is the maximum amount of shares a company can issue to raise
capital through the equity route.
Authorized Capital = Total Number of Shares x Face Value.
This value is mentioned in companies Memorandum of Association (MA).
Example: Authorised Capital for Axis Bank.
Total Nos of Shares that can be issued by Axis Bank as per MA (N): 425 Crore numbers.
Face Value of Each Share (FV): Rs.2
Authorized Capital = N x FV = Rs.850 Crore (425 x 2).
Axis Bank (a company) cannot sell shares of more than 425 crore numbers as indicated in MA.
Authorized Capital
Issued capital
Subscribed capital
Paid-up capital
(Over subscription)

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The face value remains the same. But the company is allowed to sell its shares at
a premium price (more than its face value).
Premium
Suppose there is a hypothetical company ABC which needs Rs.500 crore for its
future expansion & modernization plans.
Total Nos of Shares that can be issued by ABC as per MOA (N): 150 Crore
numbers.
Face Value of Each Share (FV): Rs.5
Authorized Capital = N x FV = Rs.750 Crore (150 x 5).
So, in terms of Authorised capital, the company has no limitation. It can raise the
needful funds even by selling shares at their face value. But considering that ABC
is an established company, with reasonable profitability, the company can sell
shares at a premium.

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When a company issues its shares at a premium, the fund thus generated are
shown in the company's balance sheet.
Balance Sheet
Let’s take the example of ABC to get a better understanding.
Face Value = Rs.5 per share.
Nos. of shares issued = 17 Crore.
Selling Price = Rs.30 per share.
Premium = Rs.25 (30 – 5).
General Reserves = Rs.9.5 Crore (say). Already existing fund.

The equity share capital will show the only number of shares outstanding times the face value
of each share. Security premium account will show the number of shares outstanding times the
premium earned in each share. [Note: Premium earned on shares cannot be shown as equity
share capital.]
Market capitalization is the aggregate valuation of the company based on its current share
price and the total number of outstanding stocks. It is calculated by
Market capitalization = (Current market price per share) x (total number of outstanding shares)
For example, here is the share price of two companies from the automobile sector.
Maruti Suzuki (Face value =10) Rs 7,059 / share Outstanding share = 30.2 Cr
Market capitalization = 7059 x 30.2 = Rs. 213785 Cr
MRF – Rs 59,798 / share Outstanding share = 0.42 Cr
Market capitalization = 59798 x 0.42 = Rs. 25115 Cr
However, the total number of outstanding shares of Maruti Suzuki is much large compared to
MRF. Maruti Suzuki has around 30.2 Crore shares while MRF has 0.42 Crore shares.

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Therefore, the market capitalization of Maruti Suzuki is Rs 213,785 Crores while the market
capitalization of MRF is Rs 25,115 Crores. Therefore, Maruti Suzuki is a bigger company
compared to MRF.
Important industries in the sensex
1. Reliance Industries
2. Tata Consultancy Services (TCS)
3. HDFC Bank
4. Hindustan Unilever (HUL)
6. H D F C
7. ICICI Bank
8. Kotak Mahindra Bank
9. HCL Technologies
10. Bharti Airtel

Share Price MarketCap (Rs Current

S.No. Company Name
(Rs) Cr) PE

1 MRF 60269.95 25554.46 21.98

2 Honeywell Auto 32198.45 28463.43 60.03

3 Page Industries 20627.25 22999.38 119.17

4 Shree Cement 20296.95 73232.91 49.08

5 3M India 18795.8 21182.87 111.77

6 Abbott India 15975.35 33947.62 51.72

7 Nestle India 15876.85 153077.79 73.59

8 Bosch 13291.75 39202.21 78.23

9 Tasty Bite Eat. 10598.15 2719.49 78.62

10 Bombay Oxygen 10350.05 155.25 ---

11 P & G Hygiene 9872.25 32046.05 74

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 Share Price MarketCap (Rs Current
S.No. Company Name
(Rs) Cr) PE

12 Bharat Rasayan 9176.8 3900.14 24.07

13 Sanofi India 8748.4 20147.57 39.07

14 Dixon 8719.7 10088.82 102.4

Technology.

15 Yamuna Syndicate 8644 265.69 3.5

16 Polson 8028.8 96.35 19.39

17 Maruti Suzuki 6892.4 208205.62 51.63