Issue of Shares

A company can raise money through the public by issuing shares. The money invested by the public in the company is known as share capital. The public who buys the shares of this company receives its shares or parts of its profit in return. Those who buy the firm’s shares are called shareholders. 

The share capital is divided into small parts, which are known as shares. It is a document that acknowledges the ownership of the firm. Shares can be issued at par and premium. It was once possible for them to be issued at discount, but with the Companies Act 2013, this was prohibited. 

A company is a legal entity created by a group of people to work towards achieving a common goal. The capital of a firm is raised by several people who are the real owners of the firm, known as shareholders. Now, all of these people cannot participate in the management of a company, so they elect certain representatives or the board of directors. 

All the work done in this company is according to the guidelines of the Companies Act 2013. The issue of the prospectus is executed by a company to offer its shares and debentures to the public. Through these shares, the company can raise its share capital. 

Characteristics of a Company 

A company is a legal entity created by a group of people to work on achieving a common objective. There are certain traits that distinguish it from other types of business organisations. The characteristics of a company are: 

1. Voluntary Association: A company is a voluntary association of two or more individuals. A single person cannot form a company, and if the company is public, it needs at least seven individuals.
2. Common Seal: A company is not a real person so it cannot sign for itself. The common seal is the signature of a company. Any document bearing the common seal of a company is binding on it.
3. Separate Legal Entity: A company has a separate identity. It is a separate artificial person. The members of a company and the company itself are separate. A company can sue and be sued, buy property in its name, open a personal bank account for itself, issue a prospectus, etc. 
4. Transferability of Shares: The issue of the prospectus is done by the company so that it can offer its shares to the public. After the company receives the receipt of applications and conducts the allotment of shares, the shares can be transferred from one person to another. 
5. Can Sue or Can Be Sued: A company being a separate person can file a case against someone or can be sued by someone.

 Share Capital of a Company

Being an artificial person, a company cannot raise funds for itself, so it issues shares to the public to raise funds; these funds or capital are known as share capital. The individuals who buy shares and help in raising funds are known as the shareholders of a firm. They are the real owners of the company.

Types of Share Capital

Share capital can be categorised into five types:

1.   Authorised Capital: The total amount of capital that a company can raise by issuing shares is known as authorised capital. This is mentioned in the Memorandum of Association (MOA). It is also called registered or nominal capital.
2.   Issued Capital: In the issue of prospectus, there are only a certain number of shares that are issued to the public. The total capital raised by those issued shares is known as issued capital.
3.   Subscribed Capital: With the issue of prospectus, there is only a certain number of shares that are subscribed by the public. The total amount raised by those subscribed shares is known as subscribed capital. 
4.   Called-up Capital: It is the amount that is paid in the subscribed shares. The company gets the required amount of capital to call up the share, and the rest of the amount is the amount paid when required. This unpaid part of the capital is called uncalled-up capital.
5.   Paid-up Capital: In this case, the company does not call up the share as the amount paid depends on the shareholder. The amount of subscribed capital paid by the shareholder is called paid-up capital, and the remaining part is called uncalled-up capital.

Types of Shares

The parts into which the total share capital is divided are known as shares. Shares are of two types:

1.   Preference Shares: Preference shares are subdivided into further types i.e. cumulative or non-cumulative, redeemable or irredeemable, and participating and non-participating. This is because preference shareholders have a right to the profits of the firm to a limited extent. These shareholders have the right to be paid a fixed amount of dividend, which is to be paid before any dividend is paid to the equity shareholders.
2.   Equity Shareholders: There is no fixed rate of dividend paid to the equity shareholders. They do not hold any preferential right in the repayment of capital, distribution of dividends, and part of the profit. 

Issue of Shares

When shares are issued, all the amount is not taken at once. The amount of shares is broken into small units and issued at a certain interval of time. The steps in the process of issuing shares are outlined below: 

1.   Issue of Prospectus: A prospectus is issued by the firm to offer its shares and debentures to be sold to the public. It contains all the necessary information about the shares and when they have to be applied for and paid up.
2.   Receipt of Applications: After the issue of the prospectus, the interested buyers submit an application along with the application money and deposit the same in the bank account which was mentioned in the prospectus.
3.   Allotment of Shares: After the applications of these interested buyers are received, they are to be allotted the shares. The ones who are allotted the shares are sent a letter of allotment, and the rest are sent a letter of regret. The people who have the letter of allotment are considered to be shareholders of the firm. 

Conclusion

Shares are an easy and fast way to raise funds for a public company. There are five categories of share capital: authorised capital, subscribed capital, issued capital, called-up capital, and paid-up capital. These shares can be issued by three easy steps: the issue of prospectus, receipt of applications, and allotment of shares. The shares of a company are to be issued following the guidelines specified in the Companies Act 2013.