Transactions of Share Capital and Accounting

The third phase in the evolution of organisational forms is the corporation form. Here, the company’s capital is delivered by multiple shareholders who are the firm’s actual owners. However, it is not practicable nor preferable for all of them to engage in the company’s management. As a result, they elect a Board of Directors to oversee its operations as their representative. The company’s entire operations are governed by the rules of the Companies Act of 2013. A corporation is a legal entity that was formed or registered under the Companies Act of 2013 or any previous Companies Act.

Share Capital Transactions of a Company

A corporation, being an artificial person, cannot generate its capital, which must be obtained from a variety of sources. These individuals are referred to as stakeholders, and the amount they invest is referred to as share capital.

Because the number of shareholders is so large, a separate capital account for each of them is not possible. As a result, numerous streams of capital contributions combine into a single capital account known as the ‘Share Capital Account‘ adjusted regularly with Share Capital transactions.

Types of Share Capital

The money on a company’s shares can be eventually retrieved in easy instalments spread over some time based on its rising financial requirement, which is a key feature of its capital. The first instalment is collected with the application and is referred to as application money, and the second is collected on the allotment and is referred to as allotment funds. The remaining instalments are referred to as first call, second call, and so on. The company’s share capital can be classified in the following ways from an accounting standpoint.

Issued Capital

This portion of the authorised capital is given to the public for subscription, including the shares assigned to suppliers and the company’s memorandum signatories. 

It is clear how much-authorised capital is not available for public subscriptions. Unissued capital is referred to by the term ‘unissued capital.’ The general public may be able to access unissued capital. You can cancel your membership at any time.

Subscribed Capital

The portion of the issued capital that the general public has subscribed to is called Subscribed Capital. When the public shares offered for public subscription are fully subscribed, the issued capital and subscribed capital are equal. 

It should be remembered that the subscribed capital may eventually equal or be less than the issued capital. If the number of share capital transactions subscribed exceeds the number of shares available, the business will only distribute the number of shares for which a subscription has been received. If it’s higher than the amount offered, the allotment will be the same. To put it another way, the fact that the books are oversubscribed does not represent the fact that the books are oversubscribed.

Authorised Capital

The amount of share capital transaction that a company’s Memorandum of Association authorises it to issue is known as authorised capital. It’s also known as nominal capital or registered capital.

According to the Companies Act’s procedures, the allowed capital can be increased or decreased. It should be emphasised that the firm does not have to issue the entire authorised share capital transaction at once to the public. It may issue share capital depending on its needs, but it must not exceed the amount of allowed capital in any circumstance.

Different Classes of Shares

The units into which a company’s total share capital is divided are called shares. As a result, a share is a fractional component of the share capital transaction that serves as the foundation for a company’s ownership stake. Shareholders are those who provide money in the form of shares.

Equity Shares

An equity share is not a preference share, according to Section 43 of the Companies Act of 2013. Equity/ordinary shares, in other words, are shares that do not have any preferential rights in the payment of dividends or repayment of capital. After the preference shareholders’ dividend rights have been satisfied, equity owners are entitled to a part of the company’s distributable profits.

Preference Shares

A preferred share, according to Section 43 of the Companies Act of 2013, meets the following criteria:

• It has a rightful claim to dividends, which will be paid as a fixed amount to preference shareholders or as an amount computed using a fixed rate of the nominal value of each share before any dividend is given to equity owners
• It has or will have the priority right to the repayment of capital before anything is paid to equity owners in the event of the company’s dissolution

These share capital transactions can also be cumulative or non-cumulative, redeemable or irredeemable, and cumulative or non-cumulative.

Conclusion

An enterprise has been incorporated or registered under the Companies Act of 1956 or any previous Companies Acts.

“A company is a person, artificial, invisible, intangible, and existing solely in the eyes of the law,” said Chief Justice Marshall. Being a simple creature of law, it only has the attributes that the charter of its formation bestows upon it, either explicitly or implicitly, as a condition of its very existence.” A company’s capital is often raised through the sale of shares (also known as share capital) and debentures (also known as debt capital). This chapter explains how to account for a company’s share capital.