This document discusses accounting for share capital in companies. It defines a company and its key characteristics such as separate legal entity, perpetual succession, and limited liability. It differentiates companies from partnerships and describes the types of companies - one person company, private company, and public company. The stages of incorporation of a company are also outlined, including promotion, registration, capital subscription, and commencement of business. Prospectus and minimum subscription requirements as per the Companies Act and SEBI are also summarized.

1. ACCOUNTING FOR COMPANIES
Class 12th
Unit -2
Accounting For Share Capital
Part - 1

3. MEANING AND DEFINITION OF A COMPANY
• A company (or a joint stock company) is an association of persons formed and
registered under the companies act.
It is a legal person not having physical existence and has a separate legal entity.
• According to section 2(20) of the Companies Act, 2013
“Company means a company incorporated under this act or any other pervious
company law.”
• According to Prof. Haney
“A company is an artificial person, created by law having a separate entity with a
perpetual succession and a common seal.”

4. CHARACTERISTICS OR FEATURES OF COMPANY
• Incorporation :- A company is an artificial person created by the process of law,
i.E., Companies act.
• Separate legal entity :- A company is an artificial person having a legal entity
separate from its shareholders.
• Artificial person :- In the eyes of law it is an artificial person. It can own property,
enter contract, conduct business, sue or be sue or be sued for its debts and
actions.
• Perpetual existence :- a company has a perpetual succession, i.e., its existence is
not affected by the death, lunacy or bankruptcy of its members or shareholders.

5. • Limited liability :- liability of its members is limited to the value of shares
subscribed by them or amount guaranteed to be paid at the time of winding up
in the case of company limited by guarantee.
• Transferability of shares :- share of a company are freely transferable in the case
of companies listed on a stock exchange.
• Management and ownership :- a company is not managed by all the members
but by the elected representatives called Directors.
• Common seal :- a company may or may not have a common seal.
CHARACTERISTICS OR FEATURES OF COMPANY

6. DIFFERENCE BETWEEN PARTNERSHIP AND
COMPANY
PARTNERSHIP
• It is set up by an agreement among the
partners. Registration is not compulsory under
partnership act 1932.
• It is regulated by Indian partnership act,1932
applies.
• Minimum number of partners is 2 and
maximum number is 50 as per section 464 of
companies act 2013 and rule 10 of companies
act rules 2014
COMPANY
• It is set up by registration under the companies
act 2013 or under any previous companies act.
• It is regulated by companies act 2013.
• In the case of public company, minimum
number of members is 7 without any
maximum limit. A private company must have
at least 2 members but not more than 200
excluding its present or past employee
members. One person company has only one
member.

7. DIFFERENCE BETWEEN PARTNERSHIP AND
COMPANY
PARTNERSHIP
• Liability of the partners is unlimited, joint
and several.
• Profits are distributed as per the terms of
the partnership deed or equally if
partnership deed does not exist.
• Audit of books of account is not
mandatory.
COMPANY
• Liability of the members is limited to the amount of
shares held by them or amount guaranteed to be paid
on winding up in case of companies limited by
guarantee. However ,in the case of companies with
unlimited liability, liabilities of members is unlimited.
• The board of directors decide how much dividend is
to be paid. Interim dividend is declared by the board
of directors while proposed (final) dividend is
declared (approved) by the shareholders.
• Audit of books of account is mandatory.

8. DIFFERENCE BETWEEN PARTNERSHIP AND
COMPANY
PARTNERSHIP
• Business may be managed by all the
partners or any of them acting for all.
• A partnership can carry on any
business, if all the partners agree.
COMPANY
• Business is managed by the directors
who are elected by the shareholders.
• A company can carry on only that
business which is permitted by the
objects clause of its Memorandum of
association.

9. DIFFERENCE BETWEEN PARTNERSHIP AND
COMPANY
PARTNERSHIP
• A partner can transfer his profit share
to other person as is provided in the
partnership deed or with the consent
of all the partners.
• A partnership may be wound up by on
agreement or by an order of the court.
• It is affected by death, retirement or
insolvency of partners.
COMPANY
• Except in case of unlisted and private
companies, transfer of shares is not
restricted.
• A company can be wound up only by
the process prescribed in the
companies act,2013.
• Shareholder’s death, insolvency or
transfer of shares do not affect
continuity of the company.

10. TYPES OF COMPANIES
• COMPANIES ARE OF FOLLOWING THREE TYPES :
1)ONE PERSON COMPANY(OPC);
2)PRIVATE COMPANY;
3)PUBLIC COMPANY.

11. ONE
PERSON
COMPANY
(OPC)
• ONE PERSON COMPANY (OPC) IS A COMPANY WHICH HAS ONLY ONE NATURAL PERSON
AS A MEMBER OR SHAREHOLDER.
• SECTION 2(62) OF THE COMPANIES ACT ,2013 DEFINES ONE PERSON COMPANY AS ‘ONE
PERSON COMPANY MEANS A COMPANY WHICH HAS ONLY ONE PERSON AS MEMBER’.
• RULE 3 OF THE COMPANIES (INCORPORATION) RULES,2014 RELATING TO ONE PERSON
COMPANY PRESCRIBES THAT :
(A) ONLY A NATURAL PERSON BEING AN INDIAN CITIZEN AND RESIDENT IN INDIA CAN
FORM ONE PERSON COMPANY OR CAN BE A NOMINEE FOR THE SOLE MEMBER OF
ONE PERSON COMPANY .
(B) ONE PERSON CAN FORM ONLY ONE ‘ONE PERSON COMPANY ‘OR BECOME NOMINEE
OF ONLY ONE SUCH COMPANY.
(C) IT CANNOT BE FORMED FOR CHARITABLE PURPOSES.
(D) IT CANNOT CARRY OUT NON-BANKING FINANCIAL INVESTMENT ACTIVITIES
INCLUDING INVESTMENTS IN SECURITIES OF ANY BODY CORPORATE.
(E) ITS PAID-UP SHARE CAPITAL IS NOT MORE THAN 50 LAKH.
(F) ITS AVREAGE ANNUAL TURNOVER OF THREE YEARS SHOULD NOT EXCEED 2 CRORE.
A ONE PERSON COMPANY SHOULD HAVE AT LEAST 1 DIRECTOR BUT NOT MORE THAN 15
DIRECTORS.

12. PRIVATE
COMPANY
• A PRIVATE COMPANY IS ONE WHICH HAS A MINIMUM PAID-UP SHARE CAPITAL AS MAY BE
• PRESCRIBED*AND WHICH BY ITS ARTICLES OF ASSOCIATION:
(A) RESTRICTS THE RIGHT TO TRANSFER ITS SHARES,IF ANY.
(B) EXCEPT IN THE CASE OF ONE PERSON COMPANY, LIMITS THE NUMBER OF ITS MEMBERS EXCLUDING
ITS PRESENT OR PAST EMPLOYEE MEMBERS TO 200.
(C) PROHIBITS ANY INVITATION TO PUBLIC TO SUBSCRIBE FOR ANY SECURITIES OF THE COMPANY.
• [SECTION 2(68)OF THE COMPANIES ACT ,2013]
• A PRIVATE COMPANY SHOULD HAVE AT LEAST 2 DIRECTORS BUT NOT MORE 15 DIRECTORS.
• THE NAME OF A PRIVATE COMPANY ENDS WITH THE WORDS,`PRIVATE LIMITED’.
* The companies are not required to have minimum paid-up capital at present vide notification dated 29th
May,2015.

13. PUBLIC COMPANY
• A PUBLIC COMPANY IS A COMPANY WHICH:
(A) IS NOT A PRIVATE COMPANY;
(B) HAS A MINIMUM PAID-UP CAPITAL AS MAY BE PRESCRIBED*;AND
(C) IS A PRIVATE COMPANY,BEING A SUBSIDIARY OF A COMPANY WHICH IS NOT A
PRIVATE COMPANY.
• [SECTION 2(71)OF THE COMPANIES ACT,2013]
• A PUBLIC COMPANY MUST HAVE AT LEAST 7 MEMBERS.THERE IS NO RESTRICTION
ON THE MAXIMUM NUMBER OF MEMBERS.
• A PUBLIC LIMITED COMPANY SHOULD HAVE AT LEAST 3 DIRECTORS BUT NOT
MORE THAN 15 DIRECTORS.
• THE NAME OF A PUBLIC COMPANY ENDS WITH THE WORD ‘LIMLITED’.
• A PUBLIC COMPANY CAN RAISE ITS CAPITAL BY ISSUE OF SHARES TO PUBLIC FOR
SUBSCRIPTION.

14. TYPES OF COMPANIES
BASED ON LIABILITY
• BASED ON LIABILITY A COMPANY ,
PRIVATE OR PUBLIC,MAY BE:
(I) LIMITED LIABILITY COMPANY,
(II) UNLIMITED LIABILITY COMPANY,
(III)COMPANY LIMITED BY
GUARANTEE.

15. LIMITED LIABILITY COMPANY OR COMPANY LIMITED BY SHARES
According to section 2(22)of
the companies act,2013
A company having the
liability of its members
limited by the memorandum
to the amount, if any, unpaid
on shares respectively held
by them is termed as a
company limited by shares.

16. UNLIMITED LIABILITY COMPANY
According to section 2(92)of the
companies act,2013.
it is a company where the liability
of its members is unlimited.

17. COMPANY LIMITED BY GUARANTEE
section 2(21)of the companies act,2013.
It is a company having the liability of its
members limited by the memorandum to such
amount as the members may respectively
undertake to contribute to the assets of the
company in the event of it being wound up.

18. INCORPORATION OF A COMPANY
• Promotion;
• Incorporation or registration
of a company;
• Capital subscription;
• commencement of business.
The process
for
incorporating
a company
can be divided
into four
stage:

19. PROMOTION
• It is the first stage of the company’s
incorporation. A person or a group of persons
agree to start business in the form of a company.
These persons are called promoters.

20. INCORPORATION
OR REGISTRATION
OF A COMPANY
• A company is incorporated following the procedure prescribed
in the companies act,2013.
• The promoters after getting the name of the proposed
company approved from the registrar of companies submit
memorandum of association (in the memorandum of
association, the promoters also undertake to subscribe the
stated member of shares once the company is incorporated),
articles of association, consent of first directors to act as
directors to act as directors and a declaration that the
requirements of the companies' act have been complied with.
• The registrar of companies, thereafter, issues certificate of
incorporation. The company ,thereafter, comes into existence.

21. CAPITAL
SUBSCRIPTION
AND
COMMENCEMENT
OF BUSINESS.
• A company has to obtain ‘commencement of
business’ certificate within 180 days of its
incorporation. A company has to submit a
declaration to the effect that every subscriber to the
memorandum of association has paid the value of
the shares agreed to be taken by him.

22. PROSPECTUS
• [section 2(70) of the companies act,213]
A public company issues a document called ‘prospectus’ in which terms and conditions
Of the issue are stated along with the purpose for which proceeds of the issue of
Securities shall be used.
“Prospectus” means any document described or issued as a prospectus and includes a red
herring prospectus or shelf prospectus or any notice, circular, advertisement or other
document inviting offers from the public for the subscription or purchase of any securities
of a body corporate.

23. MINIMUM
SUBSCRIPTION
[SECTION 39(1) OF
THE COMPANIES
ACT,2013] AND
PROVISIONS OF SEBI
(SECURITIES AND
EXCHANGE BOARD
OF INDIA)
• As per section 39(1) of the companies act,2013,minimum subscription is the
amount stated in the prospectus that must be subscribed and the amount
payable on application for the amount stated as minimum subscription have
been paid to and received by the company by cheque or other instrument.
• Sebi(securities and exchange board of India),the regulatory authority for listed
companies prescribes that a company must receive minimum subscription of 90
per cent of the shares issued for subscription before it allots the shares.
• Thus, in the case of public issue of shares, unless 90% of the sum payable on
application for share Issued to the public for subscription is received by the
company, share cannot be allotted.
• In case, minimum subscription is not received within specified period,
application money shall be refunded within fifteen days from the closure of the
issue.