1. Course: BBA
Semester: First Semester
Name of Subject: Financial Accounting and
Analysis
Subject Code: BBA 105
Unit-IV
Faculty Name: Ms. Shivani Arora,
Assistant Professor
DR. AKHILESH DAS GUPTA INSTITUTE OF TECHNOLOGY
AND MANAGEMENT
By Shivani Arora 1
2. Introduction to Joint Stock Company
A joint stock company is an organisation which is owned jointly by all its shareholders. Here, all the
stakeholders have a specific portion of stock owned, usually displayed as a share.
Each joint stock company share is transferable, and if the company is public, then its shares are
marketed on registered stock exchanges. Private joint stock company shares can be transferred from
one party to another party. However, the transfer is limited by agreement and family members.
Features of
Company
Voluntary
Association
Independent
Legal Entity
Perpetual
Existence
Common Seal
Limited
Liability
Transferability
of Shares
By Shivani Arora 2
4. Partnership Firm Company
Definition
Partnership Firm is a mutual agreement between two or more
persons to run the business and share profit and loss mutually.
Company is an association of persons with a common objective of
providing goods and services to customers.
Applicable Act
Indian Partnership Act, 1932 Indian Companies Act, 2013
Minimum Number of Members Required
2 members for a partnership firm 7 for public limited, 2 for Private Limited,
Maximum Number of Persons allowed
100 members Maximum 200 members for a Private Limited, unlimited members
for a Public Limited
Essential Documents Required
Partnership Deed required for the creation of a partnership firm Memorandum of Association and article of association is mandatory
for incorporating a company
Capital Requirement
No such amount required 1 Lakh minimum for a Pvt Ltd and 5 lakh in case of Public
Company
Requirement of Audit
No audit required Mandatory audit is required every year
Transferability of Shares
Consent required from all partners before transferring Can be transferred
Is it considered a Legal Entity?
Not considered It is considered a legal entity
By Shivani Arora 4
5. PRIVATE COMPANY
PUBLIC COMPANY
Meaning
A privately-owned business can sell its own, secretly or privately held shares
to a couple of willing financial backers.
A public organisation can offer its own enlisted shares to the overall
population or the general public.
Regulations to Follow
Until the privately owned businesses reach $10 million and a greater number
of than 500 investors or shareholders, they don’t need to follow any
guidelines given by the Government.
A public organisation needs to comply with a ton of guidelines and detailing
principles according to the Government.
Advantage
The essential benefit of a privately traded or exchanged organisation is that it
doesn’t have to pay all due respects to any investors, and there’s no
requirement for divulgences also.
The essential benefit of a public corporation is that it can take advantage of
the market by selling more shares.
Size of the Firm
Privately owned traded organisations can likewise be huge organisations.
The possibility that a privately held organisation is a more modest or small
company is absolutely false.
Public corporations are enormous organisations.
Funds and their Sources
For privately-held organisations, the wellspring of assets is not many private
financial backers or investors.
For the public corporation, the source of assets or funds is by selling its
bonds and shares.
Traded in
The stock of a privately owned business is claimed and exchanged or traded
by a couple of private financial backers.
The stocks of a public organisation are exchanged or traded in the stock
exchanges.
By Shivani Arora 5
6. Shares
Shares are units of stocks issued by a corporation that represent ownership. They are sold to
investors and traders to raise capital for the company.
Features
1. A share has a nominal value & bears a distinct number.
2. A share certificate issued under a common seal.
3. An ownership security.
4. It is said to be a bundle of rights as well as liabilities.
5. It is issued generally at par, premium & discount.
6. Moveable property.
Stocks
Stock is the aggregate consolidated holdings of the share capital of a person. It can be
divided and transferred in any fractions & sub-divisions without regard to the original face
value of the share for the purpose of convenient holding into different parts.
By Shivani Arora 6
7. Shares
Stocks
Definition
A share is a financial instrument that represents the part ownership
of a company.
A stock is a financial instrument that represents part ownership in
one or more organisations.
Denomination
The value of two different shares of a company can be equal to
each other.
The value of two different stocks of a company may or may not be
equal to each other.
Nominal Value
There is a nominal value that is associated with shares. There is no nominal value that is associated with stocks.
Possibility of Original Issue
There is zero possibility of an original issue in the case of shares. There is a possibility of an original issue in the case of stocks.
Paid-up Value
The shares of a company are either fully paid up or partially paid
up.
The stocks of a company (or a group of companies) are always
fully paid up.
Scope
Shares have a narrower scope when compared to stocks. Stocks have a wider scope when compared to shares.
By Shivani Arora 7
9. Share Capital
Share capital in company law refers to the total value of funds raised by a company through the
issuance of shares to its shareholders. It is also known as shareholders capital as it represents the
ownership stake of the shareholders in the company.
Types of Share Capital -
1. Preference shares have certain preferential rights over equity shares. They typically
have a fixed dividend rate and are paid dividends before equity shareholders. Preferred
shareholders have a higher claim on the company’s assets in case of liquidation.
However, they usually do not have voting rights or have limited voting rights.
2. Equity Share Capital, also known as ordinary shares or common stock, equity shares
represent ownership in a company. Equity shareholders have voting rights and are
eligible for a share in the company’s profits in the form of dividends. They bear the
highest risk but also have the potential for higher returns.
By Shivani Arora 9
10. There are multiple kinds of share capital that a company can have. Here are some common types:
•Authorized Share Capital: It refers to the maximum amount of shareholders’ capital that a
company is authorized to issue as per its constitutional documents. This represents the total value
of shares that can be issued by the company.
•Issued Share Capital: It represents the portion of authorized shareholders’ capital that the
company has actually issued to shareholders. These are the shares that are in circulation and held
by investors.
•Subscribed Share Capital: It refers to the portion of issued share capital that has been subscribed
or agreed to be taken up by shareholders. This represents the shares that shareholders have
committed to purchasing.
•Paid-up Share Capital: It represents the portion of subscribed shareholders’ capital that has been
paid by shareholders. It reflects the actual amount of money received by the company in
exchange for the shares issued.
By Shivani Arora 10
11. Company issues shares to be purchased by the general public so that they can be owned by the public.
There are two scenarios related to the issue of shares, which are:
1. Oversubscription of shares
2. Under Subscription of shares
Oversubscription is referred to as the situation where a company receives more applications from share
buyers than the number of shares made available for the public.
Under Subscription is referred to as the situation where the number of shares applied by the public is less
then the shares that are issued by the company.
Calls in advance are the excessive amount received by any company in advance upon which has been
called up. If a company is allowed and authorised by its articles, it may accept the amount from the
shareholders. The advance amount can be transferred to the account specially opened for the call in
advance, known as call in the advance account.
Calls in arrears are the amount that is called with respect to sharing and if not paid before the
due date. The call money can also be called allotment money, and the company can call it. If any
failure or default arises to send the call money, it may be known as the calls in arrears. For the
calls in arrears, a separate account should be opened and maintained.
By Shivani Arora 11
12. Issuance of Shares at Par
The stock is reported to have been issued at par value when subscribers are only needed to pay the
nominal or face value of the shares issued. The par value of shares determines a shareholder’s maximum
liability and protects a company’s creditors. Unlike the market value, the par value is constant and does
not fluctuate.
Issuance of Shares at Discount
The issue of shares at a discount occurs when a corporation issues its shares at a lower cost than the
nominal value of the share. For example, suppose a share has a face value of $20, and the company issues
it at $15. In that case, the difference of $5 represents the discount granted by the firm on the issue of each
share.
Issuance of Shares at Premium
If the sum received for issued shares is greater than the face value of the shares, they are considered to be
issued at a premium. The difference between the share issue price and the par value of the shares offered
for sale is used to compute the premium.
For example, the public receives 500 shares from a Company. The shares have a par value of $10 each. The
share of $10 is issued at $15 per share. As a result, the company has received $5 per share as a share
premium. The total share premium of $2,500 will be credited to Company’s share premium account.
By Shivani Arora 12
13. Forfeiture of Shares Meaning
Forfeiture of shares is referred to as the situation when the allotted shares are cancelled by the
issuing company due to non-payment of the subscription amount as requested by the issuing
company from the shareholder.
In the event of forfeiture of shares, the shareholders loses the rights and interests of being a
shareholder and ceases to be a member of the organisation.
Some shareholders might fail to pay instalments, viz., allocation of money or call money. In such a
scenario :
•Their share will be forfeited, which means that the shareholder’s share will be cancelled.
•All the entries associated with the forfeited stocks, apart from those associated with premium,
already mentioned in the accounting records must have conversed.
•The share capital account is debited with the amount called-up.
By Shivani Arora 13
14. Surrender of shares
Surrender of shares is a short cut procedure in order to avoid the forfeiture of shares. Shares that
have the possibility of being forfeited due to defaulting in payment can be voluntarily surrendered
by the shareholders.
Such a surrender of shares can be accepted by the company if there is any provision for such an
arrangement in the Articles of Association (AoA) of the company.
Rights Shares
A rights issue is an offering of rights to the existing shareholders of a company that gives them an
opportunity to buy additional shares directly from the company at a discounted price rather than
buying them in the secondary market. The number of additional shares that can be bought
depends on the existing holdings of the shareowners.
By Shivani Arora 14
15. Bonus Shares
Bonus shares are an additional number of shares given by the company to its existing shareholders as
“BONUS” when they are not in the position to pay a dividend to its shareholders despite earning decent
profits for that quarter.
Only a company has the right to issue bonus shares to their shareholders, which has earned massive
profit or large free reserves that cannot be utilized for any particular purpose and can be distributed as
dividends.
However, these bonus shares are given to the shareholders according to their existing stake in the
company.
For example:
If a company declares one for two bonus shares, it would mean that an existing shareholder would get
two additional shares for one existing share.
Suppose a shareholder holds 2,000 shares of the company. When the company issues bonus shares, he
will receive 1000 bonus shares, i.e. (2000 *1/2 = 1,000).
By Shivani Arora 15
16. Issue of Debentures
The issue of Debentures seems to be much alike to the issue of shares by an enterprise. Here, the money
can be accumulated either in lump sum or in instalments. Now, the debentures can be either issued for
some other considerations or cash. Often issue or circulation of debentures is done as collateral security.
The issue of Debentures for Cash
Debentures in accustomed progress of the business concern are circulated for cash. Circulation of
debentures that occurs can be categorized into 3 types, like the issue of shares at a discount, at a premium
and at par.
The issue of Debentures at Discount
When the debentures are circulated below the face value, this type of circulation of debentures is called a
discount issue. Say, for instance, the debenture possesses a nominal value of 200/- but is issued for 190/-.
This type of debentures is known to be issued at a discount.
The issue of Debentures at Premium
The issue of debentures at a premium is when the money is charged more than the nominal value. The
premium amount charged to a special a/c is known as Securities Premium Reserve A/c. This account shall be
depicted on the liabilities side of the Balance Sheet below the heading Reserves and Surplus. So, if a
debenture with a face value of 200/- is sold at 210/- then it is circulated at a premium.
By Shivani Arora 16
