Accounting For Shares And Debentures


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Accounting For Shares And Debentures

  1. 1. The joint stock company<br />Accounting for <br />Shares and Debentures<br />
  2. 2. Learning Objectives<br />To understand the meaning and essential characteristics of a Company<br />To explain different kinds of companies<br />To enumerate steps required for formation and commencement of business by a company<br />To identify the sources of funds to be raised by a company.<br />To understand the meaning of shares, share capital and their kinds<br />To state the rules regarding allotment of shares<br />To understand the meaning of Debentures and their kinds.<br />To understand Shareholders’ equity, Debt Vs. Equity, Obligation Vs. Ownership.<br />
  3. 3. Introduction<br />A company/Corporation represents the third stage in the evolution of forms of business organizations.<br />It enjoys a separate legal status.<br />The ownership is divorced from management.<br />
  4. 4. Meaning and definition of a company<br />Meaning:<br />The word ‘corporation’ is derived from the Latin word “Corpus”, meaning body.<br />It means an association of persons formed for any common object of its members and acts on behalf of all them.<br />Definition:<br />The Companies Act, 1956 defines a company as “ a company formed and registered under this Act or an existing company ( i.e. a company formed and registered under any of the former companies Act).<br />
  5. 5. Essential characteristics of a company<br /><ul><li>Voluntary association
  6. 6. Separate legal entity
  7. 7. Perpetual existence
  8. 8. Common seal
  9. 9. Limited liability
  10. 10. Free transfer of ownership
  11. 11. Professional management
  12. 12. Government regulation</li></li></ul><li>Kinds/Types of companies<br /><ul><li>Chartered Corporations/Companies
  13. 13. Statutory companies
  14. 14. Government companies
  15. 15. Foreign companies
  16. 16. Registered companies:
  17. 17. Private company
  18. 18. Public company</li></li></ul><li>Distinction between private and public limited companies<br />Members<br />No invitation to public<br />Share capital<br />Commencement of business<br />Legal formalities<br />Transferability of shares<br />Administration<br />Restrictions regarding managerial remuneration<br />
  19. 19. Formation of company<br />Promotion<br />Incorporation<br /><ul><li>Ascertainment of availability of proposed name of co.
  20. 20. Application for license
  21. 21. SEBI’s approval to the draft prospectus
  22. 22. Preparation of the Memorandum of Association
  23. 23. Preparation of the Articles of Association
  24. 24. Preparation of the Prospectus
  25. 25. Fixation of the underwriters, brokers, solicitors, auditors, etc.
  26. 26. Subsequent steps:
  27. 27. Filing of the documents and payment of the necessary fees
  28. 28. Obtaining the Certificate of Incorporation</li></ul>Commencement of business<br />
  29. 29. Sources of funds to be raised by a co.<br />Ownership funds/ Owners’ equity<br />Borrowed funds/ Borrowed equity/Debt funds<br />
  30. 30. Shares<br />Meaning:<br />The capital of a company is divided into a no. of units called shares.<br />Types: <br />Equity shares<br />Preference shares<br />Cumulative and Non-cumulative Pref. shares<br />Participating and Non-participating Pref. shares<br />Convertible and Non-convertible Pref. shares<br />Redeemable and Non-redeemable Pref. shares<br />
  31. 31. Share capital<br />Meaning:<br />The sum total of the nominal value of shares of a company.<br />Types:<br />Preference share capital<br />The sum total of the nominal value of preference shares of a co.<br />Equity share capital<br />The sum total of the nominal value of equity shares of a co.<br />Classification of share capital:<br />Authorized share capital<br />Issued share capital<br />Subscribed share capital<br />Called-up share capital<br />Paid-up share capital<br />
  32. 32. Issue of shares – accounting procedure <br />1. Issue of shares for Consideration other than Cash:<br />Issue of shares to the vendors<br />A co. may purchase a running business and pay to the vendors purchase consideration in the form of shares.<br />Issue of shares to the promoters<br />A company may allot fully paid shares to the promoters or any other person for providing technical information, engineering services, plan outlay etc..<br />2. Issue of shares for cash:<br />Applications<br />Allotment<br />Oversubscription<br />Undersubscription<br />Calls <br />