- Why This Chapter Matters
- 1. Meaning of a Company
- Key Understanding:
- 2. Features of a Company
- 1. Separate Legal Entity
- 2. Limited Liability
- 3. Perpetual Succession
- 4. Transferability of Shares
- 5. Common Seal
- 6. Can Sue or Be Sued
- 3. Types of Companies
- Based on Liability:
- Based on Members:
- 4. Share Capital (Core Concept)
- 5. Categories of Share Capital
- 1. Authorised Capital
- 2. Issued Capital
- 3. Subscribed Capital
- 4. Called-up Capital
- 5. Paid-up Capital
- 6. Uncalled Capital
- 7. Reserve Capital
- 6. Shares and Their Types
- Types of Shares:
- 1. Preference Shares
- 2. Equity Shares
- 7. Issue of Shares (Process)
- Step 1: Issue of Prospectus
- Step 2: Application
- Step 3: Allotment
- Step 4: Calls
- 8. Accounting Entries (Core Practical Area)
- On Application:
- Transfer to Capital:
- On Allotment Due:
- On Receipt:
- On Call Due:
- On Receipt:
- 9. Calls in Arrears
- 10. Calls in Advance
- 11. Over Subscription
- Solutions:
- 12. Under Subscription
- 13. Issue of Shares at Premium
- Uses of Securities Premium:
- 14. Issue of Shares at Discount
- 15. Issue for Consideration Other Than Cash
- Formula:
- 16. Important Rules for Calls
- 17. Common Mistakes Students Make
- Final Understanding
Why This Chapter Matters
This chapter shifts from partnership to company accounting, which is more structured and regulated.
Here you learn:
- How companies raise money
- How shares are issued
- How accounting entries are passed
This chapter is heavily practical and directly scoring in exams.
1. Meaning of a Company
A company is a legal entity formed under law.
According to Companies Act, 2013:
- A company is an artificial person
- It exists only in the eyes of law
- It is separate from its owners (shareholders)
Key Understanding:
- Owners = Shareholders
- Management = Board of Directors
- Company = Separate legal identity
2. Features of a Company
1. Separate Legal Entity
Company is different from its members.
2. Limited Liability
Shareholders are liable only to the extent of unpaid share value.
3. Perpetual Succession
Company continues even if members change.
4. Transferability of Shares
Shares can be transferred easily (especially in public companies).
5. Common Seal
Acts as official signature of company.
6. Can Sue or Be Sued
Company can enter legal contracts.
3. Types of Companies
Based on Liability:
- Companies Limited by Shares
- Companies Limited by Guarantee
- Unlimited Companies
Based on Members:
- Public Company
- Private Company
- One Person Company (OPC)
4. Share Capital (Core Concept)
Company raises capital by issuing shares.
Share capital is the total amount contributed by shareholders.
5. Categories of Share Capital
This is a very important conceptual area.
1. Authorised Capital
Maximum capital company can issue.
2. Issued Capital
Part of authorised capital offered to public.
3. Subscribed Capital
Part of issued capital accepted by public.
4. Called-up Capital
Amount demanded by company from shareholders.
5. Paid-up Capital
Amount actually received.
6. Uncalled Capital
Amount not yet demanded.
7. Reserve Capital
Called only during winding up.
6. Shares and Their Types
A share represents ownership in company.
Types of Shares:
1. Preference Shares
- Fixed dividend
- Priority in repayment
2. Equity Shares
- Variable dividend
- Higher risk and return
7. Issue of Shares (Process)
Shares are not collected in one go.
Money is collected in stages:
- Application
- Allotment
- Calls (First, Second, Final)
Step 1: Issue of Prospectus
Invitation to public
Step 2: Application
Investors apply and pay application money
Step 3: Allotment
Shares are allotted
Step 4: Calls
Remaining money collected
8. Accounting Entries (Core Practical Area)
On Application:
Bank A/c Dr.
→ Share Application A/c
Transfer to Capital:
Share Application A/c Dr.
→ Share Capital A/c
On Allotment Due:
Share Allotment A/c Dr.
→ Share Capital A/c
On Receipt:
Bank A/c Dr.
→ Share Allotment A/c
On Call Due:
Share Call A/c Dr.
→ Share Capital A/c
On Receipt:
Bank A/c Dr.
→ Share Call A/c
9. Calls in Arrears
When shareholders do not pay call money.
- It becomes Calls in Arrears
- Shown as deduction from capital
10. Calls in Advance
When shareholders pay before call is made.
- Treated as liability
- Interest may be paid
11. Over Subscription
When applications exceed shares offered.
Solutions:
- Full rejection
- Pro-rata allotment
- Mixed approach
12. Under Subscription
When applications are less than shares offered.
- Shares allotted as per applications
- Must meet minimum subscription
13. Issue of Shares at Premium
When shares are issued above face value.
Extra amount → Securities Premium Account
Uses of Securities Premium:
- Issue bonus shares
- Write off expenses
- Buyback of shares
14. Issue of Shares at Discount
Generally not allowed except:
- Reissue of forfeited shares
- Special cases
15. Issue for Consideration Other Than Cash
Shares issued in exchange for assets.
Formula:
Number of Shares = Amount Payable ÷ Issue Price
16. Important Rules for Calls
- Call ≤ 25% of face value
- Minimum 1 month gap
- Proper notice required
17. Common Mistakes Students Make
- Confusing types of capital
- Wrong journal entries
- Ignoring calls in arrears/advance
- Misunderstanding over-subscription
- Forgetting securities premium treatment
Final Understanding
This chapter is about how companies raise and manage capital.
If you understand:
- Capital structure
- Share issue process
- Journal entries
Then:
- Numericals become mechanical
- You gain strong control over company accounts
Sushant Kumar
Founder
As a current B.Com (Hons) student at DU SOL and an active Chartered Accountancy (CA) aspirant, I understand the exact pressure, syllabus confusion, and administrative hurdles students face daily. TheSushant.in was built to provide first-hand, stress-tested guidance. Every DU SOL update, exam strategy, and CA study note shared here comes directly from my personal academic journey, official notifications, and real-time student experience. No generic advice: practical, student-to-student blueprints to help you clear your exams and level up.
