Company Accounts — I
(What is a Company? Shares, Capital & How Companies Raise Money!)
A company is an artificial PERSON created by law — it can own property, enter contracts, sue and be sued, but has no physical body! This chapter covers types of companies (private, public, govt), difference from partnership, two types of shares (equity & preference), 5 categories of capital, and how shares are issued — at par, at premium, at discount, forfeiture, and bonus.
Banky Meets “Mr. Company” — The Artificial Person! 🏢
A borrower named “ABC Pvt Ltd” applies for a loan. Banky asks: “Who is ABC?” His manager says: “ABC is a COMPANY — an artificial person created by law. It has no body, no brain, but it can own ₹100 crore of assets, employ 500 people, and sue YOU in court!” Banky needs to understand what a company IS before he can lend to one!
The Full Chapter — Everything You Need
📖 Part 1 — 10 Features of a Joint Stock Company
A company is NOT a person you can touch — it’s an ARTIFICIAL person created by law. Section 2(20) of Companies Act, 2013 defines it. 10 key features:
1. Incorporated Association — must be registered under Companies Act. 2. Artificial Person — created by law, can enter contracts, sue and be sued. 3. Perpetual Succession — doesn’t die when a shareholder dies. 4. Common Seal — company’s “signature” (now OPTIONAL after CA Amendment 2015; can be replaced by signatures of 2 directors or 1 director + CS). 5. Limited Liability — shareholders liable only up to face value of shares held. 6. Separation of Ownership & Management — shareholders own, Board of Directors manage. 7. Transferable Shares — shares freely transferable (restrictions for private co.). 8. Separate Legal Status — independent from shareholders. 9. Large Membership — Private: min 2, max 200. Public: min 7, no max. 10. Minimum Paid-up Capital — NO minimum prescribed now (CA Amendment 2015 removed the ₹1L/₹5L requirement).
📋 Part 2 — Types of Companies (3 Classifications)
A. By Incorporation: (1) Chartered (by royal charter — not in India), (2) Statutory (by Act of Parliament — LIC, FCI, Air India), (3) Registered (under Companies Act — TCS, Reliance, Wipro), (4) Foreign (incorporated outside India but operates here — HSBC).
B. By Ownership: (1) Private (max 200 members, restricted share transfer, no public invitation), (2) Public (min 7, no max, free transfer), (3) Government (51%+ held by Central/State Govt), (4) Holding (owns subsidiary), (5) Associate (significant influence, not subsidiary), (6) One Person Company (single member!), (7) Subsidiary (controlled by holding company — 50%+ shares or Board composition).
C. By Liability: (1) Limited by Shares (most common — liability = unpaid amount on shares), (2) Limited by Guarantee (liability = fixed guarantee amount — used by non-profits), (3) Unlimited Liability (rare).
⚖️ Part 3 — Partnership vs Company (8 Differences)
| # | Partnership | Company |
|---|---|---|
| Formation | Easy, limited formalities | Difficult, many legal formalities |
| Registration | NOT compulsory | COMPULSORY under CA 2013 |
| Members | Min 2, Max 10 (banking)/20 (others) | Pvt: 2–200. Public: 7–no max |
| Liability | UNLIMITED | LIMITED (to face value of shares) |
| Management | Partners themselves | Board of Directors (elected) |
| Existence | NO perpetual existence | PERPETUAL existence |
| Transfer | Needs consent of all partners | Freely transferable (pvt: restricted) |
| Govt Control | Limited | STRICT (Companies Act, SEBI, etc.) |
💰 Part 4 — Share Capital: 2 Types of Shares + 5 Capital Categories
Equity Shares: Normal shares with voting rights. No fixed dividend — depends on profit. Higher risk, higher reward. Can also have differential voting rights (DVR).
Preference Shares: Get dividend FIRST (at fixed rate) before equity. Get capital back FIRST on winding up. But limited/no voting rights. Types: Cumulative/Non-cumulative, Redeemable (max 20 years, 30 for infrastructure), Participating/Non-participating, Convertible/Non-convertible. Irredeemable preference shares are PROHIBITED by CA 2013, Section 55(i).
5 Categories of Capital:
1. Authorised Capital = Maximum the company CAN issue (stated in MOA). Also called Nominal/Registered Capital.
2. Issued Capital = Actually offered to public. ≤ Authorised Capital.
3. Subscribed Capital = Actually applied for by public. ≤ Issued Capital.
4. Called-up Capital = Amount the company has ASKED shareholders to pay.
5. Paid-up Capital = Amount actually RECEIVED from shareholders. ≤ Called-up. The difference = Calls in Arrears.
📝 Part 5 — Issue of Shares: At Par, Premium, Discount, Forfeiture
At Par: Share issued at face value. ₹100 share issued for ₹100. Normal procedure: Application → Allotment → Calls. Oversubscription = more applications than shares offered → pro-rata allotment, excess refunded or adjusted.
At Premium: Share issued ABOVE face value. ₹100 share issued for ₹120 (₹20 premium). Premium goes to Securities Premium Reserve — can be used ONLY for specific purposes (issuing bonus shares, writing off share issue expenses, buying back shares).
At Discount: Share issued BELOW face value. Only as Sweat Equity Shares (to employees/directors for their expertise/IP). Regular shares CANNOT be issued at discount anymore.
Forfeiture: When a shareholder doesn’t pay the called-up amount, the company can CANCEL those shares. Entry: Share Capital Dr, To Forfeited Shares A/c (amount already paid), To Calls in Arrears (unpaid amount). Forfeited shares can be RE-ISSUED (even at discount up to the forfeited amount).
Non-Voting Shares: Equity shares without voting rights but with HIGHER dividend. Max 25% of paid-up capital. Must be authorised by Articles + special resolution. Cannot convert voting shares into non-voting.
Min application in IPO: ₹10,000 to ₹15,000 value. Entire subscription money to be called within 12 months of allotment (exception: issue size > ₹100 crore with SEBI monitoring agency).
Exam-Ready Points
🎯 Must Remember!
- Company = Artificial person created by law. Section 2(20), CA 2013. Perpetual succession. Separate legal entity.
- Common seal: NOW OPTIONAL (CA Amendment 2015). Can use 2 directors’ signatures or 1 director + CS instead.
- Minimum paid-up capital: NO minimum prescribed anymore (CA Amendment 2015 removed ₹1L/₹5L rule).
- Private company: Min 2, Max 200 members. Restricted transfer. No public invitation for shares.
- Public company: Min 7, No maximum. Free transfer. Can invite public.
- Government company: 51%+ paid-up capital held by Central/State Govt.
- FCI, LIC, Air India = Statutory companies (created by Act of Parliament)
- Partnership liability: UNLIMITED. Company liability: LIMITED to face value of shares.
- Equity shares: Voting rights. Variable dividend. Higher risk/reward.
- Preference shares: Fixed dividend rate. Priority in dividend + capital return. Limited/no voting.
- Irredeemable preference shares = PROHIBITED by CA 2013 Section 55(i)
- Redeemable preference: Max 20 years (30 for infrastructure with 10% annual redemption from year 21).
- 5 Capitals (AISCAP): Authorised → Issued → Subscribed → Called → Paid-up. Each ≤ previous.
- Shares at discount: Only as SWEAT EQUITY (to employees/directors). Regular discount shares = NOT allowed.
- Securities Premium: Can be used ONLY for bonus shares, writing off share issue expenses, buying back shares.
- Forfeiture: When shareholder doesn’t pay called amount. Shares cancelled. Can be re-issued.
- Non-voting equity: Max 25% of paid-up capital. Higher dividend. Special resolution needed.
- Min IPO application: ₹10,000 to ₹15,000. Full money called within 12 months of allotment.
📝 Past Exam Questions
Memory Tricks
🧠 Trick 1 — 10 Features
Created by law | Has own identity
Never dies (perpetual succession)
Limited liability | Owns property
Common seal NOW OPTIONAL!”
🧠 Trick 2 — 5 Capitals (AISCAP)
All Indian Students Can Actually Pass!”
A = Authorised (max possible)
I = Issued (offered to public)
S = Subscribed (applied for)
C = Called (asked to pay)
P = Paid-up (actually received)
🧠 Trick 3 — Equity vs Preference
(high risk, variable reward, voting power)
Preference = VIP GUEST 🎩
(fixed dividend FIRST, capital back FIRST,
but no/limited vote)
🧠 Trick 4 — Shares at Discount
For employees/directors who give
their EXPERTISE or intellectual property
Regular discount = BANNED! ❌”
🧠 Trick 5 — Private vs Public
Min 2, Max 200, restricted entry
Public = BIG wedding 🎉
Min 7, No max, open invitation!”
🧠 Trick 6 — Preference Types
Cumulative, Redeemable,
Participating, Convertible!”
Irredeemable = BANNED! ❌
Max 20 yrs (30 for infra)
🧠 Trick 7 — Govt Company
held by Central/State Govt
= GOVERNMENT Company! 🏛️
FCI = Statutory (by Act)
BHEL = Govt Company (by 51%+)”
🧠 Trick 8 — Common Seal
CA Amendment 2015 made it OPTIONAL!
Now: 2 directors’ signatures
OR 1 director + Company Secretary
= valid alternative! ✍️”
The Whole Chapter in One Picture
Last-Minute Flash Cards
⚡ Module B • Chapter 3 (Unit 14) Done!
- Company: Artificial person by law. Perpetual. Separate entity. Common seal now OPTIONAL. No min capital.
- Types: By incorporation (Statutory/Registered/Foreign), Ownership (Private/Public/Govt), Liability (Limited/Guarantee).
- Partnership vs Company: Unlimited vs Limited liability. Easy vs Difficult formation. No perpetuity vs Perpetual.
- 2 Share types: Equity (voting, variable) vs Preference (fixed, priority). Irredeemable pref = PROHIBITED.
- 5 Capitals (AISCAP): Authorised → Issued → Subscribed → Called → Paid-up. Each ≤ previous.
- Issue: At Par, At Premium (→ Securities Premium Reserve), At Discount (only Sweat Equity!), Forfeiture, Bonus.
Banky says: “Company = Robot 🤖! AISCAP = funnel! Equity = Adventurer, Preference = VIP! Sweat only for discount! Common seal optional! I know companies now!” 🎉🏢
Next: Chapter 15 — Company Accounts Part II (Debentures, Buyback, Financial Statements format)! 💪