Company : Issue of Shares (Rules and accounting treatment)

Issue of shares 

Hey guys

Welcome back!!!!

Today I am going to tell you about issue of shares. The learning objective of this article is to enrich your knowledge about issue of shares, the accounting treatment regarding the issue and rules mentioned in laws regarding the issue.

So, this article will surely boost up your knowledge regarding the companies and shares. This will help you in your exams regardless of your class (it may be +2, CA, CS, graduation etc.) so listen carefully …

 There are three types of companies:

1. Private company, 2.Public Company; 3.One Person Company.  

Only the Public company can issue its share to the public after fulfilling the certain legal compliances as per the Act and SEBI. Public company can issue shares either by Public Issue of Shares, by Private Placement of Shares, by Right issue, Bonus issue , Composite issue. 

Let’s talk about the issues:

1) Public issue: when company issues shares to public at large.These are of two types one is IPO and another one is FPO

 2) Private placement of shares : when company issues shares to some selected groups or investors like mutual funds, insurance companies etc.
 These are of three types : Preferential Issue, Qualified Institutional Placement (QIP), Institutional Placement Programe (IPP). 
3) Right issue:  when company offers shares at concessional rate to its existing shareholders on a stipulated date, fixed by the company itself. This issue focuses on raising funds from existing shareholders in proportion to their share capital.
4) Bonus issue: whenever company has enough surplus fund or enough free reserves then company has to issue free shares to its existing shareholders in ratio of their fully paid up shares.
5) Composite issue :  A composite issue is one in which an already listed company offers shares on the public-cum-rights basis wherein the allotment in both public issue and rights issue is proposed to be made simultaneously, it is called composite issue.

Procedure of issue:

1) Issue of prospectus:

Prospectus is a written document which contains all the terms and conditions of issue. It means company will issue a document in which it will publish all the details of issue of shares.

 [As per section 2(70) of companies act 2013 prospectus means any document described or issued as a prospectus and includes a red herring prospectus or shelf prospectus or any notice, circular, advertisement or other document inviting offers from the public for the subscription or purchase of any securities of a body corporate.]

2) Application of shares:

Person after reading the prospectus will fill the share application form in a prescribed manner. He will fill the quantity of shares and enclose the cheque of application money amount. He will then send this form and cheque to the company office or any address mentioned in the prospectus.

As per section 39(2) of companies act minimum application money should be 5% of the face value or such other percentage or amount as may be prescribed by SEBI. But SEBI provides that application money should not be less than the 25% of the issue price. So application money should not be less than 25% of the issue of price.

Entry will be: 1. Bank a/c                   dr.

                             To Share application

                      2. Share application      dr.

                             To Share capital a/c

3) Allotment of shares:

Company after receiving applications will discuss to the concerned share market experts and will decide how much people will get allotment letter and how much will receive letters of regret.      Those who receive letter of allotment will now have to pay allotment money (in case of payment in parts.) others will get back their money back into their bank accounts as their application was rejected.

On refund of application money:   Share application      dr.

                                                                     To Bank

If shares were allotted:    1. Share allotment     dr.

                                                   To Share capital

                                          2. Bank                        dr.

                                                  To Share allotment

4) Calls on shares:

Company may collect money in one or more instalments. If one call is made then it will be called First and final call in place of first call, otherwise word final call will be added after the name of last call. (like second and final call and so on)

Entry: 1. Share first call     dr.

                 To Share capital

          2. Bank                    dr.

                To Share first call

          3. Share second & final call dr.

                 To Share capital

           4. Bank                   dr.

                  To Share second & final call

5) If payment is in lump sum: company may decide to call whole money in one instalment from shareholders, then following entry will be passed:

     i) Bank                                               dr.

            To Share application & allotment

      ii) Share application& allotment      dr.

             To Share capital

Understood?? The procedure!!!!! Yes!!!!! Good!!!!!!!! Now move on to Table F

Rules as per companies law regarding the calls :

1) Calls are made as provided in the articles of association of the company.

2) If company does not have clause in its AOA then, Table F of Companies Act 2013, will apply. Table F has following provisions :

    i) Period of one month must elapse between two calls.

    ii) The amount of one call should not be more than 25% of the face value of the shares.

    iii) Notice of 14 days period should be given to the shareholders to pay the amount.

Learned???? Sounds simple???? Great!!!!!       

Now the learning objective of this article has attained. Now we will cover the terms of issue of shares in our next article.  If you like this article then please show your response into the comment box it will motivate us to give our best in our articles.

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Thank you

Shivam garg

Team Go Commerce

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