Video Lectures 
Study Material & Notes
Artificial Legal Person:– A company is an artificial person as it is created by law. It has almost all the rights and powers of a natural person. It can enter into contract. It can sue in its own name and can be sued.
Incorporated Body:– A company must be registered under Companies Act. By virtue of this, it is vested with corporate personality. It has an identity of its own.
Capital Divisible into Shares:– The capital of the company is divided into shares. A share is an indivisible unit of capital. The face value of a share is generally of a small denomination like Rs.5, Rs.10, Rs. 100
Transferability of Shares:– The shares of the company are easily transferable. The shares can be bought and sold in the stock market
Perpetual Existence:– A company has an independent and separate existence distinct from its shareholders. Changes in its membership due to death, insolvency etc. does not affect its existence and its continuity.
Limited Liability:– The liability of the shareholders of a company is limited to the extent of face value of shares held by them. No shareholder can be called upon to pay more than the face value of the shares held by them. At the time of winding up, if necessary, the shareholders may be asked to pay the unpaid value of shares
Representative Management:– The number of shareholders is so large and scattered that they cannot manage the affairs of the company collectively. Therefore they elect some persons among themselves to manage and administer the company. These elected representatives of shareholders are individually called the ‘directors’ of the company and collectively the Board of Directors.
Common Seal:– A common seal is the official signature of the company. Any document bearing the common seal of the company is legally binding on the company.
The name of a Private Company ends with the words, ‘Private Limited’.
Minimum number of members required to form a public limited company is seven. There is no restriction on maximum number of members.
The name of a public company ends with the word ‘Limited’.
Section 2 (62) of the companies Act, 2013, defines One Person Company as a “company which has only one person as a member”. Rule 3 of the Companies (Incorporation) Rules, 2014 provides that:
Minimum no. of Members
Maximum no. of Members
200 (Two Hundred) excluding its present or past employee members
Minimum no. of Directors
Maximum no. of Directors
‘Private Limited’ is used at the end of the company’s name
‘Limited’ is used at the end of the company’s name
Invitation to Public
It cannot invite public to subscribe to its shares
It invites public to subscribe to its shares.
Transfer of Shares
Articles of Association of the company restrict transfer of shares
Listed Companies–allowed without restriction, Unlisted Companies–restricted by the Articles of Association
Prospectus is not issued
Prospectus must be issued to invite public to subscribe for shares, if not a Statement in Lieu of Prospectus is filed with Registrar of Companies
Articles of Association
Special Articles of Association are necessary
Can adopt Table F given in the Companies Act, 2013 or can have its own having different clauses
Allotment of Shares
Shares may be allotted as the Directors decide.
Listed Companies–Shares can be allotted only if minimum subscription has been received. Unlisted Companies–Shares may be allotted as the Directors decide.
Video Lectures 
Preference shares are the shares that carry the following two rights:
Equity shares are the shares which are not preference shares.
Rate of Dividend
Rate of dividend on Equity shares is variable and depends upon the decision of the Board of directors
Rate of dividend on Preference shares is fixed.
Payment of Dividend
Dividend on Equity shares is paid after payment of dividend to preference shareholders
Dividend on Preference shares is paid before payment of dividend to equity shareholders
Refund of Share Capital on Winding up of the Company
On winding up of the company equity share holders get refund of capital only after preference share holders have been paid off.
Preference shareholders have a preference over equity shareholders in regard to refund of capital in case of winding up of the company
Equity Shareholders have voting rights in all matters
Preference Shareholders can vote only in special circumstances
Equity Shares cannot be redeemed during the life of the company.
Preference Shares can be redeemed as per terms of issue.
According to Section 2(8) of Companies Act, 2013, authorised capital means such capital as is authorised by the Memorandum of a Company to be the maximum amount of share capital of a company. It is also known as Nominal or Registered Capital
The remaining portion not yet offered to the public for subscription is called the unissued capital which can be issued later on.
Capital Reserve means the part of profit reserved by the company for a particular purpose such as to finance long-term projects or to write off capital expenses
It is that portion of the uncalled capital which a company has reserved and decided to call only in case of liquidation of the company to settle its creditors
Created out of
On the equity & liabilities side of the balance sheet under the head Reserve and Surplus.
Not disclosed at all
No such conditions
Special Resolution should be passed at AGM for its creation
To write of fictitious assets or capital losses etc.
Only when the company is about to wind up.
In general, shares are issued for cash. The company may call the share money either in one instalment or in two or more instalments. But company always collects this money through its bankers.
The company may receive the share money in one instalment along with application. In this case the following journal entries are made in the books of the company
On the allotment of shares the amount receivable on the next instalment i.e. on allotment becomes due.
Full-subscription is a situation where number of shares applied for is equal to the number for which applications have been invited for subscription.
A company has offered 1,00,000 shares to the public and the public has applied for all the 1,00,000 shares, it is said to be full subscription.
As number of applications received is equal to the number of shares offered, accounting entries towards receipt of application money, allotment of shares will be passed on the basis of shares offered by the company.
Under subscription is a situation where number of shares applied for is less than the number for which applications have been invited for subscription..
A company offered 2,00,000 shares for subscription to the public but the applications were received for 1,90,000 shares only.
Over-subscription is a situation where number of shares applied for is more than the number for which applications have been invited for subscription.
A company offered 1,00,000 shares for subscription to the public but the applications were received for 2,00,000 shares
In such a condition, three alternatives are available to the directors to deal with the situation:
Number of shares applied by the public is more than the shared offered for subscription
Number of share applied by the public is less than the shared offered for subscription
90%. If the shares applied is less than 90%, the issue is dissolved
Complete rejection, Pro-rata, rejection or both
All the applicants get the shares
Can be refunded or adjusted with allotment money or calls
There is no excess money
Sometimes, the full amount called on allotment and/or call (calls) is not received from the allottees/shareholders.
When any shareholder fails to pay the amount due on allotment or on any of the calls, such amount is known as ‘Calls in Arrears’/‘Unpaid Calls’.
There are two ways to treat Calls-in-Arrears.
Amount not received towards allotment or calls is debited to a newly opened account ‘Calls-in-Arrear Account’.
Subsequently, when the arrear/unpaid amount is received, Bank A/c is debited and the Calls-in-Arrear A/c is credited.
Under this method, Calls-in-Arrears A/c is not opened.
Whatever amount is received from the shareholder is credited to the call account. The call account will show a debit balance equal to the unpaid amount of the call.
Subsequently, when the arear/unpaid amount is received, Bank A/c is debited and the relevant call A/c is credited.
Interest can be charged on unpaid calls for the period intervening between due date of the call and the time of actual payment at the rate specified in The Articles of Association of the company
If the Articles of Association is silent, interest can be charged @ 10% p.a. as per Table F of Schedule I of the Companies Act, 2013
The Directors of the Company have the right to waive this interest payment either wholly or partially
Calls in Arrears is an Assets and is clubbed under the sub-head ‘Shareholder Funds’ and disclosed as below
Subscribed but not Fully Paid up
…… Equity/Preference Shares of Rs. .…. each, Rs. ..… called up
Less: Call in Arrears
Calls in Advance is a liability of the Company, it is clubbed under the sub-head ‘Other Current Liabilities’ and disclosed in the Balance Sheet in the following manner
4. Current Liabilities:
(C)Other Current Liabilities
Private Placement as per Section 42 means:
There are three features which distinguish the private placement from other issues.
After approval from Board of Directors, Management issues letter of acceptance to employees. After receipt of letter of acceptance of option, employees are eligible to exercise options once these are vested as per ESOP plan.
The Company holds a Board Meeting at regular intervals during the exercise period for allotment of shares on options exercised by the employees.
When the shares forfeited are reissued at discount, Bank account is debited with the amount received and Share Capital account is credited with the Paid-up amount. The amount of discount allowed is debited to Forfeited Shares Account.
According to Section 2(20) of the Companies Act, 2013, “Debenture includes debenture stock, bonds or any other instrument of a company evidencing a debt, whether constituting a charge on the assets of the company or not”
Debenture is a written instrument acknowledging a debt under the common seal of the company. It contains a contract for repayment of principal after a specified period or at intervals or at the option of the company and for payment of interest at a fixed rate payable usually either half-yearly or yearly on fixed dates.
Bond is also an instrument of acknowledgement of debt. In the Bond instead of rate of interest amount payable on maturity is mentioned.
It means any instrument other than debenture or bond issued by the Company substantiating borrowing. For example Company invites money from Pubic in the form of Pubic deposits
The persons to whom the debentures are issued, are called debenture holders. The debenture holders are not the owners of the company. They are the lenders of the company.
Discount on issue of debentures is netted off from Securities Premium Reserve (if it exists) or from the Statement of Profit & Loss Account in the year debentures are allotted
The liability of Premium on redemption arises the time of redemption of debentures. Being a known lability, following the prudence concept it is recorded on allotment of debentures itself
Debenture Face Value
Number of Debentures
9% per annum
Profit & Loss A/c
Loss Rs. 75,00,000
(10,000×100)x9%x6/12 = Rs. 45,000
Income Tax (TDS) @ 10%
45,000×10% = Rs. 4,500/-
Interest Net of TDS