SHARES AND SHARE

CAPITAL
SHARE CAPITAL OF A COMPANY
• SHARE:- The capital of the company is divided into
a number of equal parts. Each part is called share.
• A company may divide its capital into shares of Rs. 1,
Rs. 2, Rs. 5, Rs. 10, Rs. 50, Rs. 100 or any suitable
amount.
• Example:- Total capital required by company Rs.
5,00,000 divided into 50,000 parts of Rs. 10 each.
Each part of Rs. 10 will be called share.
• Means company has 50,000 shares of Rs. 10 each.
• A company being an artificial person cannot generate
its own capital which has necessarily to be collected
from several persons. These persons are known as
shareholders and the amount contributed by them is
called share capital.
 Features of share
• Share is a movable property.
• Share gives rights and liabilities to the holder.
• Every share has a unique number except those
share whose name is entered as a beneficial
holder in the books of the depository.
 Types of shares
• Under the companies Act, 2013, a company
can issue only two kinds of shares:
• Preference Share Capital
• Equity Share Capital :
• With voting rights, or
• With differential rights as to dividend, voting
or otherwise.
 Preference shares
Preference shares are those which carry :
• A right to be paid a fixed amount of dividend.
• A right to be paid the amount of capital in the
event of winding up.
 Types of preference shares
1. CUMULATIVE PREFERENCE SHARES
2. Non-Cumulative preference shares
3. Convertible preference shares
4. NON-CONVERTIBLE PREFERENCE SHARES
5. Redeemable preference shares
6. Participating Preference Shares
7. Non-participating Preference
Shares
 Ordinary shares (Equity
Share Capital)
• Equity share capital means all share capital
which is not preference share capital.
• Equity shareholders receive dividend out of
profits as recommended by the Board of
directors and as declared by the shareholders
in an annual general meeting but after
preference share have been paid their-fixed
dividend.
 Share capital
• The amount required by the company for its
business activities is raised by the issue of
shares. The amount so raised is called the
share capital of the company.
 AUTHORISED SHARE
CAPITAL

ISSUED CAPITAL UNISSED CAPITAL

SUBSCRIBED UNSUBSCRIBED
CAPITAL CAPITAL

CALLED UP UNCALLED UP
CAPITAL CAPITAL

PAID UP CALL IN UNRESERVED RESERVED

CAPITAL ARREARS CAPITAL CAPITAL
AUTHORISED CAPITAL/NOMINAL
CAPITAL/ REGISTERED CAPITAL
• Authorised capital is the amount of share capital
which a company is authorised to issue by its
memorandum of association. The company
cannot raise more than the amount of capital as
specified in the memorandum of association.
• Depending upon its requirement, it may issue
share capital but in any case, it should not be
more than the amount of authorised capital.
• Example – Authorised capital - crore
 ISSUED CAPITAL
• It is that part of the authorised capital which is
actually issued to the public for subscription.
• The authorised capital which is not offered for
public subscription is known as unissued
capital. Unissued capital may be offered for
public subscription at a later date.
• Example issued capital- 3 Crore, Unissued
Capital – 2 Crore.
 SUBSCRIBED CAPITAL
• It is that part of the issued capital which has been
actually subscribed by the public. i.e. applied for and
allotted by the company.
• The balance of issued share capital not subscribed for
by the public. i.e. applied for and allotted by the
company.
• The balance of issued share capital not subscribed for
by the public is called unsubscribed share capital. The
subscribed share capital of the company cannot exceeds
its issued share capital.
• Example- subscribed capital- 2 Crore, Unsubcribed
Capital- 1 Crore.
 Called up capital
• The portion of the subscribed share capital which
the shareholders are called upon to pay is termed
as called up capital of the company. Company
usually does not require to pay shareholder in one
lot, the full value of share.
• Shareholder is general required to pay it in
installment. The balance of subscribed capital
which has not been called up represents uncalled
share capital. The company may collect this
amount any time when it needs further funds.
• Example- If company has subscribed share capital
Rs. 10,00,000 of Rs. 1,00,000 equity share of Rs.
10 each, Rs. 8 called up then the called up share
capital will be Rs 8,00,000. (1,00,000 X2)
 Paid up capital
• It is that portion of called up capital which has
been actually paid by the shareholders is called as
paid up share capital and the amount still due
from the share holder are called as call in arrear.
• Example- if some member fail to pay Rs. 10,000
out of called up share capital of Rs. 8,00,000.
• Paid capital shall be Rs. 7,90,000
• Calls in arrear Rs. 10,000
 Reserve capital
• As per section 99 of company act, a company
may resolve by special resolution that a
portion of uncalled share capital shall not be
called up except in the event of winding up of
the company. Such uncalled amount is called
reserve capital of the company. It is available
only for the creditors on winding up of the
company.
 Accounting of share capital
Procedure of issue of share
Public company - Register
Initial public offer (IPO)

Issue of prospectus (invitation to public to purchase its share)

Company receive application with application money

Under Full Over

Subscription Subscription Subscription

Minimum Subscription Rejecting few

Pro rate
check application

Allotment of shares (allotment money call)

Make the first calls

Second and final calls
 Issue of shares Example
• Company generally do not call the whole amount in lump
sum. They call in installments.
• Example- company required to raise Rs. 1,00,000
• Company issue 10,000 shares Rs. 10 each share.
• Application stage- Rs. 2 per share, amount receive- Rs.
20,000.
• Allotment stage- Rs. 2 per share, amount receive- Rs.
20,000
• First call stage – Rs. 3 per share, amount receive – Rs.
30,000
• Second and final call stage- Rs. 3 per share, amount
receive – Rs. 30,000
 Some important points
• Sometimes a combined account for share application and share
allotment called share application and allotment account is opened
in the books of a company.
• Reasoning that allotment without application is impossible while
application without allotment is meaningless. These two stages of
share capital are closely inter-related. When a combined account is
maintained journal entries are recorded in the following manner.
1. For receipt of application and allotment
• Bank A/c Dr.
• To share application and allotment A/c
• (money received on applications for shares @ Rs. ….. Per shares)
2. For transfer of application money and allotment amount due
• Share application and allotment A/c Dr.
• To share capital A/c
(transfer of application money to share capital account for amount due
or allotment of ----- share @ Rs.-------- per share)
• In case of over- Subscription, directors do
not allot any share to many applicants,
application money of such applicants is
returned.
• Share application A/c Dr.
• To bank A/c
• (for share application money of ------ share @
Rs. ------ is returned)
 Call in arrears
• If a share holder makes a default in depositing the
amount due on allotment or on calls, then the
amount not so deposited is called call in arrear
or call unpaid.
• Example- company issued 10,000 shares of Rs.
100 each payment is to be made in 4 installment
of Rs. 25 each.
• Mr. Hari a holder of 100 share not paid last
installment of Rs. 25
• Thus Rs. 2500 will become due as call in arrear.
 Call in arrears
• If a share holder makes a default in depositing the
amount due on allotment or on calls then the amount
not so deposited is called call in arrear or call unpaid.
• Example:-
• Company issued 10,000 shares of Rs. 100 each
payment is to be made in 4 installment of Rs. 25 each.
• Mr. Hari a holder of 100 shares not paid last installment
of Rs. 25.
• Thus Rs. 2500 will become due as call in arrear.
• Nature call in arrear is an asset account which
represent the called up amount not received from some
shareholder.
30,000
 Call in arrears (Interest)
• The articles of Association usually empower the
company’s directors to charge interest at a
specified rate on calls in arrears.
• If the articles are silent table A shall be applicable
which states that the interest at a rate 5% p.a. shall
have to be paid on all unpaid amounts on shares.
• On receipt of the call amount together with
interest.
Bank A/c Dr.
To Calls in Arrears A/c
To Interest A/c
(calls in arrears received with interest)
 Calls in Advance
• Sometimes shareholders pay a part or the
whole of the amount of the calls not yet made.
The amount so received from the shareholders
is known as calls in advance.
• The amount received in advance is a liability
of the company and should be credited to call
in advance account. The amount received will
be adjusted towards the payment of calls as
and when they becomes due.
 Journal entry
1. On receipt of call in advance
Bank A/c Dr.
To Calls in Advance A/c
(Amount received on call in advance)
2. On the due date of the calls, the amount of calls
in advance is adjusted:
Calls in advance A/c Dr.
To particular Call A/c
(Calls in advance adjusted with the call money due)
 Interest on call in advance
• The article of association usually state the rate of
interest payable on call in advance. In case the article is
silent table A shall be applicable, according to which
interest @ 6% per annum is paid. It is paid even if there
is no profits.
• The accounting treatment of interest on calls in advance
is as follows:
• For payment of interest
Interest on calls in advance A/c Dr.
To bank A/c
(Interest paid on calls in Advance)
Share capital
(over-subscription (pro-rata) & under-
subscription with practical problem)
Under- Over
Full Subscription
Subscription Subscription

Application Application
Over-
Received Offered To
Subscription
Public

Application
Application Under
Offered to
Received Subscription
Public
 Over subscription
• There are instances when applications for more shares
of a company are received than the number offered to
the public for subscription. This usually happens in
respect of shares issue of well-managed and financially
strong companies and is said to be a case of over
subscription.
• In such a condition, three alternatives are available to
the directors to deal with the situation.
1. They can accept some application in full and totally
reject the others.
2. They can make a pro-rata allotment to all.
3. They can adopt a combination of the above two
alternatives.
 First alternative (Reject
few application)
• When the directors decide to fully accept some applications
and totally reject the others, the application money received
on rejected applications is fully refunded.
• For example: invited application – 20,000 shares
• Received applications 25,000 shares.
• Rejected applications 5,000 shares and refunded their
application money in full. Company demand Rs. 2 per share
on Application.
Share Application A/c Dr. (25,000X2) 50,000
To Share Capital A/c (20,000X2) 40,000
To Bank A/c (5,000X2) 10,000
(Being the share application money adjusted)
 Second alternative (pro-
rata allotment)
• When the directors opt to make a proportionate allotment to
all applicants (called pro-rata allotment), the excess
application money received is normally adjusted towards
the amount due on allotment.
• In case, the excess application money received is more than
the amount due on allotment of shares, such excess amount
may either be refunded or credited to calls in advance.
• For example applications invited 1,00,000 shares, received-
2,00,000 shares, decided to allot shares in the ratio of 2:1 to
all applicants. Demand Rs. 2 per share on Application.
Share application A/c Dr. ( 2,00,000 X 2) 4,00,000
To share capital A/c (1,00,000 X 2) 2,00,000
To share allotment A/c (1,00,000 X 2) 2,00,000
( For Share Application money adjusted)
 Third alternative (combination 1 & 2)
• When the application for some shares are rejected; and
pro-rata allotment is made to the remaining applications.
• Full allotment, pro-rata allotment and no allotment.
• Application money returned to unsuccessful applicants,
surplus money on pro-rata allotment shares is retained for
utilizing the amount due on allotment or calls.
• Example: invite- 10,000 shares, Receive- 25,000 reject -
5,000 share application,
• Remaining 20,000 shares – pro-rata allotment 2:1 ratio.
Demand Rs. 2 per share on application
Share application A/c Dr. (25,000 X 2) 50,000
To share capital A/c (10,000 X 2) 20,000
To share Allotment A/c (10,000 X 2) 20,000
To bank A/c (5,000 X 2) 10,000
(for share application money adjusted)
 Issue of Shares at Premium
• The issue of shares at premium refers to the issue of
shares at a price higher than the face value of the
share. In other words, the premium is the amount over
and above the face value of a share.
• Usually, the companies that are financially strong,
well-managed and have a good reputation in
the market issue their shares at a premium. For
example, if a company issues a share of nominal or
face value of ₹10 at ₹11, it issues it at 10% premium.
• A company may call the amount of premium from the
applicants or shareholders at any stage, i.e. at the time
of application, allotment or calls. However, a
company generally calls the amount of Premium at
the time of allotment.