SHARE CAPITAL, CAPITAL STOCK & ITS COMPONENTS
SHARE CAPITAL, CAPITAL STOCK & ITS COMPONENTSSEMINAR BY-RUNALY MISQUITH-ROHAN MONIS
(Meaning)The M.O.A. must state the amount of capital with which the company is desired to be registered and the number of shares into which it is to be divided. When total capital of a company is divided into shares, then it is called Share capital. Share capital is the total amount of capital collected from its shareholders for achieving the common goal
A jointstock companyshould have capital in order to finance its activities. It raises its capital by issue of shares. TYPES
1. Authorized, registered, maximum or normal capitalThe maximum amount of capital, which a company is authorized to raise from the public by the issue of shares, is known as authorized capital. It is a capital with which a company is registered, therefore it is also known as registered capital.
Generally, a company does not issue its authorized capital to the public for subscription, but issues a part of it. So, issued capital is a part of authorized capital, which is offered to the public for subscription, including shares offered to the vendor for consideration other than cash. The part of authorized capital not offered for subscription to the public is known as 'un-issued capital'. Such capital can be offered to the public at a later date.
3.Subscribed CapitalIt can not be said that the entire issued capital will be taken up or subscribed by the public. It may be subscribed in full or in part. The part of issued capital, which is subscribed by the public, is known as subscribed capital
4.Called Up Capital
It is that part of subscribed capital, which is called by the company to pay on shares allotted. It is not necessary for the company to call for the entire amount on shares subscribed for by shareholders. The amount, which is not called on subscribed shares, is called uncalled capital.
5. Paid-up CapitalIt is that part of called up capital, which actually paid by the shareholders. Therefore it is known as real capital of the company. Whenever a particular amount is called and a shareholder fails to pay the amount fully or partially, it is known an unpaid calls or calls in arrears.
Paid-up Capital = Called up capital - calls in arrears
It is that part of uncalled capital which has been reserved by the company by passing a special resolution to be called only in the event of its liquidation. This capital can not be called up during the existence of the companyIt would be available only in the event of liquidation as an additional security to the creditors of the company
TERMS IN SHARE CAPITALCAPITAL STOCK :The common and preferred stock a company is authorized to issue, according to their corporate charter. Capital stock represents the size of the equity position of a firm and can be found on the balance sheet (or notes) of a typical financial statement. Firms can both issue more capital stock, or buyback shares that are currently owned by shareholders.
Large companies which may have thousands of shareholders appoint registrars and transfer agent to handle the numerous ownership changes in the company shares in electronic form to avoid handling of too much of paperwork that is associated with share transfers. These are known as demat shares.
SHARESWhen a shareholder transfers shares, he/she must complete a share transfer form and send along with share certificate to a company for recording the change in share ownership.
SHARE CERTIFICATEThe ownership of shares in a company is evidenced by a share certificate that indicates the kind and number of share as well as their distinctive serial numbers.
PAR VALUE It represents the minimum amount that a shareholder must pay on each shares.The par value ( face value) of a companys stock constitutes the companys legal minimum capital.
ACCOUNTING FOR SHARE CAPITALPAR VALUE STOCKSHARE PREMIUM / SECURITIES PREMIUMNO-PAR STOCK
ISSUANCE OF SHARE CAPITAL WITH PAR VALUEDEEPAK COMPANY ISSUES 1000 EQUITY SHARES OF RS 10 PER EQUITY SHARES AT RS 15 (INCLUDING PREMIUM RS 5) REQUIRING FULL PAYMENT.
CASH15000EQUITY SHARE CAPITAL10000SHARE PREMIUM5000ISSUANCE OF SHARE CAPITAL AT A DISCOUNTDEEPAK COMPANY ISSUES ITS SHARES AT RS 9.50 PER SHARE
CASH9500DISCOUNT ON ISSUE OF SC500EQUITY SHARE CAPITAL10000
ISSUANCE OF SHARE CAPITAL WITHOUT PAR VALUEDEEPAK COMPANY ISSUED 1000 SHARES OF NO PAR VALUE AT RS 15 PER SHARE
CASH15000EQUITY SHARE CAPITAL15000
CASH15000EQUITY SHARE CAPITAL7000SHARE PREMIUM8000ISSUANCE OF SHARE CAPITAL FOR NON CASH ASSETS AND SERVICESDEEPAK COMPANYS LAWYERS AGREE TO ACCEPT 500 SHARES OF RS 10 PAR VALUE FOR PREPARATION OF LEGAL DOCUMENTS AND OTHER SERVICES RENDERED IN CONNECTION WITH FORMATION OF THE COMPANY. THE FAIR VALUE OF THE SERVICES IS RS 8000.
PRELIMINARY EXPENSES8000EQUITY SHARE CAPITAL5000SHARE PREMIUM3000
DEEPAK COMPANY ISSUES 10,000 EQUITY SHARES OF RS 10 EACH TO ACQUIRE A PIECE OF LAND BUT THE FAIR VALUE OF THE LAND IS NOT EVIDENT. IF THE COMPANYS SHARES TRADE AT RS 18
LAND180000EQUITY SHARE CAPITAL100000SHARE PREMIUM80000RIGHTS ISSUE OF SHARE CAPITALAn existing shareholder who receives a rights offer mayTake up all the shares offered to himTake up less than the number of shares offered to himRenounce his rights in favor of another personNot take up the rights offer
RECEIPT OF SHARE OF CAPITAL IN INSTALLMENTSCASHSHARE APPLICATION AND ALLOTMENTSHARE APPLICATION AND ALLOTMENTEQUITY SHARE CAPITALCASHCASHSHARE APPLICATION AND ALLOTMENTSHARE FIRST CALLEQUITY SHARE CAPITALCASHSHARE FIRST CALLSHARE SECOND AND FINAL CALLEQUITY SHARE CAPITALCASHSHARE SECOND AND FINAL CALL
FORFEITURE OF SHARESDEEPAK COMPANY DID NOT RECEIVE THE AMOUNT OF SECOND CALL ON 100 SHARES UNTIL DECEMBER 29 AND THE SHARES WERE FORFEITED ON JANUARY 17.
EQUITY SHARE CAPITAL1000SHARES SECOND AND FINAL CALL200SHARES FORFEITED800