Issue, Forfeiture, Reissue and Buy- Back of Shares

Module No. 1

Shares and its types

Learning Objectives
1. The main object of this module is to enable students about the concept of
corporate accounting, company, share capital, types of share capital, share and
its types.
2. To enable the students to develop awareness about Corporate accounting.

Meaning of Corporate Accounting

Corporate accounting refers to the measurement, recording and interpretation of financial

information and data relating to a limited company (a public limited or a joint stock company).

What is Company?
According to Section 2 (20) of Companies Act 2013

“A company means a company incorporated under this act or under any previous company law.”

According to Prof. Haney

“A company is an artificial person, created by law, having a separate entity with a perpetual
succession and a common seal.”

Share capital

• Share capital is the sum total of moneys raised by a company from private or public sources
through issue of shares.

• Divided into certain units of fixed amount called shares.

 • The person who owns the share is called shareholder.

Thus, the money received by a company through sale of shares are called share capital.

Classification of Share capital

According to Sec. 43 of Companies Act, 2013 Share capital are of two types:

1) Equity share capital

2) Preference share capital

Classification of Share Capital for the purpose of Accounting

1. Authorised Capital: It is the maximum amount of capital which a company is

authorised to raise and is stated in the Memorandum of Association. It can also be
called as “Registered Capital” or “Nominal Capital”.
2. Issued Capital: This represents a part of the authorized capital, which is issued to
public for subscription.
3. Unissued Capital: The difference between authorised capital and the issued capital
represents unissued capital.
4. Subscribed Capital: It refers to that part of the issued capital which has been
subscribed by the public.
5. Unsubscribed Capital: The difference between issued capital and subscribed capital
represents unsubscribed capital.
6. Called-up Capital: This refers to that part of the subscribed capital which has been
called up by the company for payment.
7. Un-called Capital: The difference between subscribed and called-up capital is called
un-called capital.
8. Paid-up Capital: It is that part of called-up capital which has been actually paid-up by
shareholders.
9. Unpaid Capital: The un-paid balance in the called-up capital is known as “calls in
arrears” or “un-paid capital”.
10. Reserve Capital: A company can reserve part of its un-called capital and will be called
only at the time of winding up. A special resolution has to be passed for this purpose.
It is not disclosed in the company’s balance sheet.
Meaning of Share and its Types

A share is defined as, “a share in the share capital of the company and includes stock”.

 Share capital of a company is collected by issue of shares.

  Share is one of the units into which total capital is divided.

Types of Shares

1. Preference shares: The shares which get preferential right in respect of :

(a) Right of dividend

(b) Repayment of capital on winding up of the company.

2. Equity shares: The shares which are not preference shares are called equity shares and do not
get preference in above respect.

Types of Preference Shares

• On the basis of right to arrears in dividend

(i) Cumulative Preference shares: Cumulative preference shares are these

preference shares, the holders of which are entitled to receive arrears of
dividend before any dividend is paid on equity shares.

(ii) Non-cumulative Preference shares: Non-cumulative preference shares are

those preference share, the holders of which do not have the right to receive
arrear of divided. If no dividend is declared in any year due to any reason. Such
shareholders get nothing, nor they can claim unpaid dividend in any subsequent
years

 On the basis of further rights with respect of profits

(i) Participating preference shares: such shares, in addition to the fixed preference
dividend, carry a right to participate in the surplus profit, if any, after providing
dividend at a stipulated rate to equity shareholders.

(ii) Non-Participating preference shares: Such shares get only a fixed rate of dividend
every year and do not have a right to participate in the surplus profit.
  On the basis of Convertibility

(i) Convertible preference shares: are those preference shares which have the
right/option to be converted into equity shares.

(ii) Non-convertible preference shares: are those preference shares which do not have
the right/option to be converted into Equity shares

 On the basis of Redemption

(i) Redeemable preference shares: are those preference shares the amount of which
can be redeemed by the company at the time specified for their repayment or earlier.

(ii) Irredeemable preference shares: are those preference shares the amount of which
cannot be refunded by the company unless the company is wound up. Now a
company cannot issue irredeemable preference shares.

Terms Related to Shares of Company

• Private Placement of Shares As per Section 42 of the Companies Act, 2013

Means an issue which is not a public issue but offered by a company to few selected
investors, particularly the Institutional Investors like the Unit Trust of India (UTI), the Life
Insurance Corporation of India (LIC), Banks etc.

• Sweat Equity Shares As per Section 2(88) of the Companies Act, 2013

sweat equity shares” means such equity shares as are issued by a company to 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, by whatever
name called;

• (IPO) Initial Public Offer As per Section 23 of the Companies Act, 2013

• Initial public offering is the process by which a private company can go public by sale of
its stocks to general public. It could be a new, young company or an old company which
decides to be listed on an exchange and hence goes public.
 • Right Shares As per Section 62(1) of the Companies act, 2013

‘Right Issue’ means offering shares to existing members in proportion to their existing
shareholding. The object is, of course, to ensure equitable distribution of Shares and the proportion
of voting rights is not affected by issue of Fresh shares

• Bonus Share As per Section 63 of the Companies Act, 2013

“Bonus shares are additional shares given to the current shareholders without any additional cost,
based upon the number of shares that a shareholder owns. These are company's accumulated
earnings which are not given out in the form of dividends, but are converted into free shares”.

References:

 Corporate Accounting – Dr S.M. Shukla & Dr K.L. Gupta

● Corporate Accounting – P. C Tulsian

● https://taxguru.in/company-law/issue-shares-companies-act2013.html
● https://www.toppr.com/guides/accountancy/accounting-for-share-capital/nature-and-classes-
of-shares-and-issue-of-shares/

Suggested Reading Material:

 Corporate Accounting – Dr S.M. Shukla & Dr K.L. Gupta
● https://books.google.co.in/books/about/Tulsian_s_Corporate_Accountancy_For_B_Co.html?id=
czoOkAEACAAJ&redir_esc=y

*Edited & Compiled Study Material by (Dr. Amrita Sahu)