Share Capital and Forfeiture of Shares

Class Introduction

• Speaker greets the class and introduces the class topic.
• Emphasis on important points and learning outcomes.

Key Topics

1. Understanding Share Capital
2. Types of Companies
3. Issue of Shares
4. Calls in Arrear & Calls in Advance
5. Issue of Shares at Premium & Discount
6. Over & Under Subscription of Shares
7. Forfeiture of Shares
8. Private Placement & ESOP

Share Capital

Types of Capital

• Authorized Capital: Maximum limit of capital as defined in the Memorandum of Association (MOA).
• Issued Capital: Part of the authorized capital issued by the company.
• Subscribed Capital: Portion of the issued capital that is subscribed by the public.
• Called-up Capital: Part of the subscribed capital for which company has called.
• Paid-up Capital: Portion of the called-up capital actually paid by shareholders.
• Calls in Arrear: Money due but not paid by shareholders.
• Calls in Advance: Money paid by shareholders in advance.

Types of Shares

• Equity Shares: No preferential rights. Higher risk and reward.
• Preference Shares: Preferential rights to dividends and repayment. Types include cumulative, non-cumulative, redeemable, and convertible.

Issue of Shares

Methods of Issue

• For Cash: Shares issued for cash consideration.
• For Consideration Other than Cash: Shares issued in exchange for assets.
• Private Placement: Shares issued to a select group of investors.
• Employee Stock Option Plan (ESOP): Shares issued to employees at a lower than market price.

General Entries

1. On Application: Bank A/c Dr. To Share Application A/c
2. On Allotment: Share Application A/c Dr. To Share Capital A/c
3. On Allotment Due: Share Allotment A/c Dr. To Share Capital A/c
4. On Allotment Received: Bank A/c Dr. To Share Allotment A/c
5. On Calls: Similar entries as above.

Calls in Arrear & Calls in Advance

Calls in Arrear

• Entry for non-payment: Calls in Arrear A/c Dr. To Share Allotment / Call Money A/c

Calls in Advance

• Entry for advance payment: Bank A/c Dr. To Calls in Advance A/c
• Shown under 'Current Liabilities' in the balance sheet.

Issue of Shares at Premium & Discount

Premium

• Additional amount over the face value.
• Securities Premium A/c used for specific purposes like issuing bonus shares.
• General entry: Share Allotment A/c Dr. To Share Capital A/c To Securities Premium A/c

Discount

• Shares issued below face value (now generally prohibited).
• Used to be debited to Discount on Issue of Shares account.

Over & Under Subscription of Shares

Over Subscription

1. Reject Excess Applications: Refund the excess amount.
2. Pro-rate Allotment: Adjust extra money towards future calls.
3. Combination: Partial refund and partial adjustment.

Under Subscription

• If shares applied for are less than shares issued.
• Check minimum subscription requirement; refund if not met.

Forfeiture of Shares

• When: Failure to pay allotment/call money.
• Articles of Association: Must permit forfeiture.
• Entries: Share Capital A/c Dr. [Securities Premium A/c Dr. if applicable] To Share Forfeiture A/c To Share Allotment/First Call A/c To Call in Arrear A/c

Re-issue of Forfeited Shares

1. At Par: Bank A/c Dr. To Share Capital A/c
2. At Discount: Bank A/c Dr. Share Forfeiture A/c Dr. To Share Capital A/c
3. At Premium: Bank A/c Dr. To Share Capital A/c To Securities Premium A/c

Transfer to Capital Reserve

Private Placement & ESOP

Private Placement

• Definition: Shares offered to a select group of people, not to the public.
• Section 42 of Companies Act, 2013: Governs private placement.

Employee Stock Option Plan (ESOP)

• Definition: Granting options to employees to purchase shares at a lower price.
• Swet Equity: Wider term, includes shares issued to promoters.

Case Study

• Conducted detailed case study examples highlighting the application of the above topics.
• Critical Insights: Emphasis on real-world application and typical exam scenarios.

• Closing: Thanks to students, encouragement, and motivational message.

Conclusion

• Thorough understanding of share capital, issuance, premium, discount, and forfeiture mechanisms.
• Special focus on practical examples and problem-solving techniques.
• Queries and doubts to be addressed in the next class.