Issue of Shares

Introduction

• Continuing from last class on ratios.
• Today’s focus: Basics of Issue of Shares.
• Will cover the entire chapter and various questions throughout the year.

What is Issue of Shares?

• Company: Needs funds.
• Public Investment: Company invites public to buy a part of it in exchange for shares.
• Example: Company worth ₹1 crore wants to sell 20% of its shares (₹20 lakhs).
• Profit Distribution: Proportional to shares owned.
  • 100% ownership = ₹1 crore.
  • Selling 20% means public invests ₹20 lakhs and receives 20% of profits.

Share and Shareholders

• Share: A part of the company bought with money.
• Shareholder: Individual who owns part of the company, thus they are partial owners.
• Share Capital: Money invested by shareholders into the company.

Types of Shares

• Equity Shares: Regular shares with voting rights, dividends depend on profits.
• Preference Shares: Prioritized in dividends and capital repayment upon company wind-up.

Share Capital Types

1. Authorized Share Capital: Max capital a company can raise as per Memorandum of Association (MOA).
2. Issued Share Capital: Part of authorized capital offered to the public.
3. Subscribed Share Capital: Part of issued capital that is taken up by the public.
   • Full Subscription: All issued shares are taken up by the public.
   • Under Subscription: Less than issued shares taken up by the public.
   • Over Subscription: More than issued shares demanded by the public.

Documents: MOA & AOA

• Memorandum of Association (MOA): Details company objectives, capital, liabilities, registered office.
• Articles of Association (AOA): Internal rules and regulations of the company.

Share Capital Concepts Explained

• Authorized Capital: Capital amount a company is allowed to raise during its lifetime as per MOA.
• Issued Capital: Portion of authorized capital offered to the public.
• Subscribed Capital: Portion of issued capital taken by public.

Subscription Types

• Full Subscription: All issued shares taken by public.
• Under Subscription: Issued shares less than what is offered.
• Over Subscription: Demand for shares exceeds the number of issued shares.

Payment Terms in Shares

1. Application Money: Initial money taken while applying for shares.
2. Allotment Money: Paid after applications are allotted shares.
3. Calls: Further payments made in installments.
   • First Call: First installment post allotment.
   • Second Call / Final Call: Final installment, remaining amount.

Paid Up and Called Up Capital

• Called Up Capital: The amount the company has called for payment.
• Paid Up Capital: The amount actually paid by shareholders.
• Difference between called up and paid up capital is the 'uncalled' amount.
• Fully Paid Shares: All called amounts are fully paid by shareholders.

Upcoming Topics

• General Entries: Accounting entries related to share transactions.
• Basics will be covered in next class.