other imp- shares Flashcards
Limited liability
liability of the members is limited to the value of share subscribed or the amount guaranteed to be paid at the time of winding up in case of companies limited by guarantee.
Unlimited liability in case of company
in case of companies in cooperated with unlimited liabilities, the liability of the members as unlimited 
transferability of shares
In case of unlisted companies and private companies it is regulated by articles of association. otherwise shares are freely transferable in case of companies listed on stock exchange
Number of members in case of public company
Minimum number of members is seven without any maximum limit
Number of members in case of private company
At least two, but not more than 200 excluding its present or past employee members
Number of members in case of one person company
One member
liability in case of partnership
Liability of partners is unlimited joint and several
interim dividend is declared by the board of directors while proposed i.e final dividend is declared(approved) by the shareholders.
accompany can only carry on the business which is permitted by the object clause of its memorandum of association.
Do pages 8.3 to 8.5 of book 2
Stages of incorporation of a company
promotion
Incorporation or registration
Capital subscription
commencement of Business
A company has to obtain commencement of business certificate for which declaration is to be filed within 180 days of it’s incorporation
Minimum subscription
section 39(1) of companies act 2013 prescribes that minimum subscription is the amount that the company states in the prospectus which must be subscribed.
SEBI prescribes that accompany must receive minimum subscription of 90% of shares issued for subscription before a lot shares .
At least 90% of the sum payable on application or the minimum subscription stated in the prospectus , which ever is higher, should be received by the company before the shares can be allotted.
Minimum subscription not received within the specified period
Application money has to be refunded within 15 days from the closure of the issue
Preliminary expenses include
all expenses incurred for incorporating the company such as registration fee legal expenses, preparation of project report, public issue expenses et cetera.
preliminary expenses are written off
from security premium, capital reserve and statement of profit and loss(in that order) in the year they were in.
PAGE 8.7 and 8.8 book 2
companies act 2013 does not permit issue of irredeemable preference shares
Subscribed and fully paid up
The company has called up the total total nominal face value of the share and has also received it
Subscribed but not fully paid up
The company has called up the total nominal value of the share but has not received it
The company has not called up the total nominal value of the share
The company has not called up the total face value of the share and also the company has not received the amount called up
calls in arrears
amount not received by the company
Amount not paid against the amount called towards share capital .
It is shown in notes to accounts and share capital under subscribed capital
(subscribed but not fully paid up)
As a deduction .
Calls in advance
if articles of association permits , a company may receive amount against calls yet to be made.
Shown under:
Main head -current liabilities
Subhead -other current liabilities
reserve capital
That part of subscribed capital that a company resolves, by a special resolution, not to call except in the event of winding up of the company
Shown under :
subscribed but not fully paid up .
Difference between reserve capital and capital reserve on page number 8.15
Private placement of shares
issue and allotment of shares to select group of investors privately to raise capital and not to public in general through public issue.
These investors usually are banks, mutual funds,venture capitalists and individuals
shares can only be issued at par(at nominal or at face value) or at premium(above the nominal or face value)
Do page 8.22 of book 2
Oversubscription of shares alternatives
excess applications are rejected.
Pro rata allotment
Combination of the above two alternatives
if the question is silent, the surplus application money over and above the amount that is due on allotment is refunded.
interest on calls in arrears
if authorised by articles of association a company may charge interest at a specified rate from the due date to the date of payment.
otherwise.
table F of companies act 2013 provides for interest on calls in arrears at the rate of 10% per annum
Revisit page No. 8.51
interest on calls in advance
It is paid if articles of association so provide. but if it is silent or does not have a clause to this effect provisions of table F of companies act 2013 apply and the companies liable to pay interest on calls in advance at 12% p.a
Authority under articles of association
Calls in Arrears- AOA does not have any clause to this effect as nonpayment is beyond company’s control.
Calls in advance -a company may accept calls in advance only if articles of association authorise it to do so
purchase consideration is the amount paid by purchasing company for assets or business from other enterprise.
it may be given in the question, otherwise it is equal to net assets(sundry assets- sundry liabilities)
purchase consideration> net assets
Difference is debited to Goodwill account
purchase consideration< net assets
difference is credited to capital reserve.
in purchase of Business entry either Goodwill or capital reserve will appear at a time as a balancing figure.
in issue of shares entry, the only account that can come as securities premium a/c
Number of shares to be issued=
Purchase consideration/issue price of a share
preliminary expenses and underwriting commission are written off in the year there are incurred from securities premium or statement of profit and loss .
Number number of shares to be issued
(purchase consideration-payment in cash-payment through promissory note) divided by issue price
Forfeiture of shares means cancelling the shares a lot to the shareholders for non-payment of calls amount if the articles of association allows forfeiture
The company has to give notice to the defaulting shareholder to pay the due amount before forfeiting the shares.
share capital account is debited with the amount called up on the forfeited shares up to the date of forfeiture.
Forfeited shared account is credited by the amount received as share capital on the shares forfeited .
Share allotment or share calls account are credited with the amount called up but not paid .
If calls in arrears account is maintained, that account is credited
amount received by the company whether received towards share capital or premium is not refunded on forfeiture of shares
amt received on share cap- is transferred to forfeited shares account
Amount received towards securities premium remains in the securities premium account
Amount of share capital account to be debited
Number of shares forfeited x called up value per share
while being forfeited if securities premium has not been received,
Then the amount of premium credited to the securities premium account but not received on forfeited shares is debited to that account.
re-issue of forfeited shares is sale of shares, not an issue of shares
they may be re-issued at par at premium or at discount.
Re-issue of forfeited shares, provisions of companies act section 53, of nought permitting issue of shares at discount do not apply.
However discount allowed on re-issue of forfeited shares cannot be more than amount forfeited on re-issued shares .
Amount forfeited = Maximum permissible discount.
Minimum reissue price = called up value- maximum permissible discount
preferential allotment
Allotment of shares at a predetermined price to the identified people who are interested in taking shares in the company(promoters, venture capitalists, financial institutions, buyers of companies products or its suppliers)
A special resolution has to be passed in the meeting of shareholders before proceeding with preferential allotment
sweat equity shares are allowed to be issued at discount. However, a company may issue these shares at par or at premium as it decides.
Sweat equity
Equity shares issued by the company towards its directors or employees at a discount or for consideration other than cash for providing their know how or making available rights in the nature of intellectual property rights or value additions.
sweat equity shares is a wider term than employees stock option plan
ESOPs restricted to be issued to employees and employee directors whereas a company may issue equity to directors who are not employees of the company.
read ESOP page 8.104 of book 2
Shares cannot be issued at discount except when they are issued as sweat equity shares
