Tuesday, 10 December 2019

Unit 10: Share Capital

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                                                Unit 10: Share Capital


                                                                          







Nominal, authorised or registered capital.

This is the maximum amount of capital which it is authorised to raise by issuing shares and upon which it pays stamp duty.

As we shall see later, when the original amount of the authorised capital is exhausted by issue of shares, it can be increased by passing an ordinary resolution.

(1) Issued capital, (2) Subscribed capital, (3) Called-up capital and (4) Paid-up capital.


No company limited by shares and no company limited by guarantee and having a share capital, shall have power to buy its own shares, unless the consequent reduction of share capital is effected and sanctioned by the court in pursuance of s.

100 to 104 or of s.


Further, no public company and no private company which is a subsidiary of a public company can directly or indirectly (through loans or guarantee) provide financial assistance to any person to buy shares in the company or in its holding company.


Companies limited by shares have to issue shares to raise the necessary capital for their operations.

Issue of shares may be made in 3 ways.

(i) By private placement of shares; (ii) By allotting entire shares to an issue-house, which in turn, offers the shares for sale to the public; and (iii) By inviting the public to subscribe for shares in the company through a prospectus.


Offer for shares are made on application forms supplied by the company.

When an application is accepted, it amounts to an allotment.

The expression allotment is not defined under the Companies Act.

It means and implies a division of the share capital into defined shares of a particular value or of different classes and assignment of such shares to different persons.

The Supreme Court in Sri Gopal Jalan and Co.


Calcutta Stock Exchange Association Ltd.

AIR 1964 SC 250 defined allotment as “the appropriation but out of the previously unappropriated capital of the company of a certain number of shares to a person”.


A company is an artificial person and therefore, cannot act itself.

It must act through some human intermediary.

The various provisions of law empower shareholders to do certain things.

They are specifically reserved for them to be done in company’s general meetings.


Minutes are a record of business transacted at meetings.

Every organisation must keep minutes containing a fair and correct summary of all proceedings of general meetings of members and of Management Committee.

It is the duty of the secretary to make this record.


Every company must keep at its registered office proper books of accounts which shall give a true and fair view of the financial affairs of the company.

Section 209 lays down the Books of Accounts to be maintained by a company.

These books are open to inspection by any director during business hours, as also by the Registrar of companies or an officer authorised by the Central Government.

Also the books of accounts should be retained for a period of eight years.

It is obligatory on companies to maintain accounts on accrual basis.


It is compulsory for every company to appoint qualified auditors to do the audit of the accounts maintained by the company.

The first auditors(s) can be appointed by the Board of Directors within one month of the date of the incorporation of the company.


Section 225 makes provision for a resolution relating to appointment or removal of auditor.

A person who is a Chartered Accountant in practice is qualified to become an auditor.

In other words, he must be a member of the Institute of Chartered Accountants of India and in practice.


The Central Government may appoint one or more competent persons as inspectors to investigate into the affairs of any company Corporate Legal Framework
‘managing director’ as a ‘director’ who, by virtue of an agreement with the company or of a resolution passed by the company in general meeting or by its Board of directors or, by virtue of its memorandum or articles of association, is entrusted with substantial powers of management which would not otherwise be exercisable by him.


“manager means an individual who, subject to the superintendence, control and direction of the Board of Directors, has the management of the whole, or substantially the whole of the affairs of the company and includes a director or any other person occupying the position of a manager, by whatever name called and whether under a contract of service or not”.


Section 318 provides that no compensation for loss of office may be paid by a company to any director other than the managing director, or whole time director.

10.

Auditor: The fi rst auditors(s) can be appointed by the Board of Directors within one month of the date of the incorporation of the company.

Called-up capital: The company may not call up full amount of the face value of the shares.

Thus, the called-up capital represents the total amount called-up on the shares subscribed.

The total amount of called-up capital can be either equal to or less than the subscribed capital.

Issued capital: It is that part of the authorised capital which the company has issued for subscription.

The amount of issued capital is either equal to or less than the authorised capital.

Manager: “manager means an individual who, subject to the superintendence, control and direction of the Board of Directors, has the management of the whole, or substantially the whole of the affairs of the company and includes a director or any other person occupying the position of a manager.

Managing director: managing director’ as a ‘director’ who, by virtue of an agreement with the company or of a resolution passed by the company in general meeting or by its Board of directors or, by virtue of its memorandum or articles of association, is entrusted with substantial powers of management which would not otherwise be exercisable by him Meaning of Allotment: Offer for shares are made on application forms supplied by the company.

When an application is accepted, it amounts to an allotment.

The expression allotment is not defined under the Companies Act.

It means and implies a division of the share capital into defined shares of a particular value or of different classes and assignment of such shares to different persons.

The Supreme Court in Sri Gopal Jalan and Co.


Calcutta Stock Exchange Association Ltd.

AIR 1964 SC 250 defined allotment as “the appropriation but out of the previously unappropriated capital of the company of a certain number of shares to a person”.

Paid-up capital: Paid-up capital is the amount of money paid-up on the shares subscribed.

Subscribed capital: It is that portion of the issued capital which has been subscribed for by the purchasers of the company’s shares.

The amount of subscribed capital is either equal to or less than the issued capital.

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