Accounting for Share Capital Notes

Definition: An artificial person created by law, existing as a separate legal entity distinct from its members under the Companies Act, 2013.
Key Features:
- Body Corporate: Formed and registered under the Companies Law.
- Separate Legal Entity: Holds property, enters into contracts, and opens bank accounts in its own name.
- Limited Liability: Liability of members is limited to the unpaid amount on shares held or the guarantee given.
- Perpetual Succession: Continuous existence unaffected by the death, insolvency, or insanity of its members.
- Common Seal: Functions as the official signature of the company on documents.
- Transferability of Shares: Shares of public limited companies are freely transferable.
- Legal Capacity: Capable of suing and being sued in its corporate name.

Classification by Member Liability:
- Company Limited by Shares: Member liability is limited to the unpaid nominal face value of shares held.
- Company Limited by Guarantee: Member liability is limited to the specified amount guaranteed to be paid during winding up.
- Unlimited Company: Members face unlimited personal liability for company debts.
Classification by Number of Members:
- Public Company: A company that is not a private company and is not a subsidiary of a private company.
- Private Company: Restricts share transfers, requires at least $2$ members (except OPC), and limits total members to $200$ (excluding employees).
- One Person Company (OPC): Defined under Section 2(62) of the Companies Act, 2013 as a company with only $1$ member.
- Formed exclusively by a natural person who is an Indian citizen and resident.
- Paid-up share capital cannot exceed $\text{Rs. } 50\,\text{Lakhs}$ .
- Average annual turnover over $3$ years cannot exceed $\text{Rs. } 2\,\text{Crores}$ .
- Prohibited from carrying out non-banking financial investment activities.

Authorised / Nominal / Registered Capital: The maximum share capital authorized by the Memorandum of Association.
Issued Capital: The portion of authorised capital offered to the public for subscription or allotted to vendors and signatories.
Unissued Capital: The portion of authorised capital not yet offered for subscription.
Subscribed Capital: The portion of issued capital actually subscribed by the public (divided into Subscribed and Fully Paid-up and Subscribed but Not Fully Paid-up).
Called-up Capital: The portion of subscribed capital that the company has called upon shareholders to pay.
Uncalled Capital: The portion of subscribed capital not yet requested for payment.
Paid-up Capital: The actual amount received from shareholders ( $\text{Paid-up Capital} = \text{Called-up Capital} - \text{Calls in Arrears}$ ).
Reserve Capital: A portion of uncalled capital reserved to be called exclusively upon winding up.

Preference Shares (Section 43): Shares carrying preferential rights regarding:
- Payment of a fixed dividend prior to equity shareholders.
- Repayment of capital prior to equity shareholders upon winding up.
- Types: Cumulative or non-cumulative, participating or non-participating, and redeemable or irredeemable.
Equity Shares (Section 43): Shares that enjoy no preferential rights; dividends fluctuate based on profits, and shares carry voting or differential rights as prescribed.

Process Steps:
1. Issue of Prospectus: Public notice inviting subscriptions with company details.
2. Receipt of Applications: Investors submit applications along with application money into a scheduled bank.
3. Allotment of Shares: Creation of a valid contract between the company and allottees upon reaching minimum subscription.
Minimum Subscription:
- Must be at least $90\%$ of the issued amount per SEBI Guidelines, 2000.
- Must be received within $120\,\text{days}$ from prospectus issue; otherwise, application money must be refunded within $130\,\text{days}$ .
- Delay beyond $8\,\text{days}$ following subscription list closure incurs interest at $15\%\,\text{p.a.}$ under Section 73(2).
Table F Call Rules:
- Application money must be at least $5\%$ of the face value.
- Call amounts cannot exceed $25\%$ of the face value.
- Interval between two calls must be at least $1\,\text{month}$ .
- Minimum $14\,\text{days}$ notice is required for call payment.
ASBA (Applications Supported by Blocked Amount): A SEBI mechanism that blocks application funds in the applicant's bank account, debiting only upon actual share allotment.

Calls in Arrears: Unpaid call or allotment money due from shareholders.
- Table F authorizes interest charges on arrears at a rate not exceeding $10\%\,\text{p.a.}$
Calls in Advance: Amounts paid by shareholders prior to formal calls being made.
- Reported under Current Liabilities ( $\text{Other Current Liabilities}$ ) in the Balance Sheet.
- Table F mandates interest payments on calls in advance at a rate not exceeding $12\%\,\text{p.a.}$

Over Subscription: Situation where applications received exceed shares offered.
- Alternative 1: Reject excess applications outright and refund money.
- Alternative 2: Make pro-rata allotment to all applicants; adjust excess application money toward allotment/calls.
- Alternative 3: Combine rejection and pro-rata allotment.
Under Subscription: Situation where applications received are fewer than shares offered; accounting proceeds based on actual applications received provided minimum subscription is met.

Securities Premium Reserve (Section 52(2)): Capital reserve for amounts received above face value, legally restricted to:
- Issuing fully paid bonus shares.
- Writing off preliminary expenses.
- Writing off issue expenses, commission, or discount allowed on securities.
- Paying premium on redemption of preference shares or debentures.
- Buy-back of shares.
Issue for Consideration Other Than Cash: Shares issued to vendors as payment for purchased assets.
- $\text{Number of Shares Issued} = \frac{\text{Amount Payable}}{\text{Issue Price}}$

Forfeiture Procedure: Cancellation of share allotment due to non-payment of call or allotment money.
- Share Capital Account is debited with the total Called-up Amount.
- Unpaid call accounts or Calls in Arrears are credited; Share Forfeiture Account is credited with the amount already received.
Securities Premium Handling:
- If premium is received, it is not reversed.
- If premium is unpaid, Securities Premium Reserve Account is debited upon forfeiture.
Reissue of Forfeited Shares:
- Can be reissued at par, premium, or discount.
- Maximum discount allowed on reissue = Amount previously forfeited/received on those specific shares.
- Capital profit on reissued forfeited shares ( $\text{Forfeited Amount} - \text{Discount Allowed}$ ) is transferred to the Capital Reserve Account.

Employees Stock Option Plan (ESOP): Rights granted to employees/directors to purchase company shares at a predetermined price lower than market value.
Buy-Back of Shares (Section 68): Company purchasing its own shares out of free reserves, securities premium, or proceeds of shares.
- Maximum buy-back limit: $25\%$ of paid-up capital and free reserves per financial year.
- Maximum post-buy-back Debt-Equity ratio: $2:1$ .