Understanding issue of share in accounts

An ownership which has certain percentage in a financial asset or a company is known as shares. The shares which are held by any enterprise or any financial asset and then they are distributed to the shareholders who are willing to purchase it.

The shareholders mentioned above can be either corporates or individuals who take part while buying of the shares. This part of accounts about shares is not so easy one therefore sometimes students have to go for accounting assignment help.

Types of Shares:-

1. Preference shares:

Preference shares are those which have following rights:

• The dividend is received by them at a fixed rate before the payment of any dividend on equity shares.
• The return of capital is done before the equity shares, at the time of winding up of company.

They also have the additional rights, such as, they have the right to take part in excess profits when the payment of specified dividend on the equity shares is done or the right of receiving premium during redemption.

2. Equity shares:

The shares which are paid through the profits which are left after the payment of preference shareholders have been done at a fixed rate of dividend, is called equity shares.

The equity share will receive nothing if they are insufficient profits in a particular year. A company gets higher rate of dividend if it earns more profit. According to return of capital, the return of equity share capital is done only when the return of preference share capital is done in full. The shareholders of the equity shares enjoy full voting rights and have a control on the affairs of the company.

Kinds of share capital:-

• Authorized, registered or nominal capital: The amount that is affirmed in the Memorandum of Association, is known as authorized capital. The company is authorized for issuing its shares during its lifetime for this maximum capital.
• Issued capital: the part of authorized capital that has been offered to the public for subscribing it, is called issued capital. The prevailing part of the authorized capital is known as “Unissued capital”.
• Subscribed capital: The part of issued capital which is subscribed for by the public is called subscribed capital. It is divided under two heads in the balance sheet:

a) Subscribed and fully paid up: The face value of the share that has been called up by the company and the payment of which is entirely done by the shareholder, is called ‘Subscribed and fully paid up’ capital.

b) Subscribed but not fully paid up: The shares are ‘subscribed and not fully paid up’, under the following conditions:

i. The shareholder has not made the payment of some part of the face value of the share apart from the fact that the company has called up the entire face values of the share.

ii. When the entire face values of the share have not been called up by the company.

• Called-up capital: The part of the subscribed capital, which are called by the directors from shareholders to make payment, is called called-up capital.
• Paid-up capital: The word ‘Paid-up’ means the amount that is received against the calls which are made on the shares. Mostly, the paid-up capital and the called-up capital are same apart from the fact that there may be some shareholders who might have not make the payment of the amount of calls. The unpaid amounts are referred to as ‘Calls in arrear’.
• Reserve capital: The Section 65 of the Companies Act, 2013, states that an unlimited company, the one which has a share capital, may have a reserve capital as soon as it converts to a limited company.

Issue of capital is important for raising capital for strategic and operational reasons. Students needing assignment help must understand that it may be issued in following ways:

• For cash: By public subscription of shares

a) To issue prospectus: Prospectus refers to an invitation which is given to the public for purchasing its shares. In order to attract the investing public, it describes the soundness of the business of the company and its profitability.

b) To receive applications: After the prospectus has been read by the public, they apply for the shares in the company on the basis of the prescribed form. Each and every application must include the application money, which is introduced in the prospectus, however, it should not be less than 25% of the price which is issued on each share.

c) To make allotment of shares: All applications are send to the company by the bank after the expiry of last date of receipt which was fixed for application money. If the Minimum Subscription which is mentioned in the prospectus is received by the company, then only the directors of the company can go ahead to allot the shares.

• For consideration other than cash

a) Issue of shares to promoters: The promoters of the company are issued share in the company for the services they render.

b) Issue of shares to underwriters: Underwriting refers to an agreement which is brought in front of the public, before the issue, states that if debentures or shares are not fully taken up by the public, underwriters will be responsible for it.

They will take them up and will make payment for such part of debentures or shares, the application for which is not given by the public. Underwriters are those who undertake the issue of shares or debentures.

c) Issue of shares to vendors: Sometimes the company issue fully paid shares to the vendors as they cannot make the payment in the form of cash for the assets purchased by them.

The above-mentioned points are sufficient enough to understand about shares and get accounting assignment help. Also students going for assignment help must refer to them in such a way that they are crucial to understand.