SHAREHOLDERS EQUITY

Presented by:Sonal Saraswat FS-51 Sonali Srivastava FS-52 Sonali Srivastava FS-53 Soumya Upreti FS-54 Srishti Chaubey FS-55

SHARE CAPITAL
Shareholders equity of a company consists of two parts: Share capital Reserves and surplus Share capital represents the initial as well as later issues of capital by a company. Some of the terminologies in share capital are as follows: Capital Stock : The capital stock of the company is divided into a number of units known as shares. Par Value : It represents the minimum amount that a shareholder must pay on each share.

 Authorized capital : The authorized capital is the maximum number of shares of stock, specified by the memorandum of association, that may be issued by a company and the par value of each share.

Issued Capital : The number of shares issued by the company.

Subscribed Capital : The number of shares taken up by the company. Paid up Capital : The amount of share capital that have been received by the company. Called up Capital : The total amount of issued capital for which the shareholders are required to pay.

Example: ABC Ltd was registered with registrar with a registered capital of Rs. 20,000,000 where each share is of Rs. 10. In response to the advertisements made by the company to buy shares in the company applications have been received for 1,000,000 shares but company actually issued 700,000 shares where company has called for Rs. 8 per share. All the calls have been met in full except three shareholders who still owe for their 6000 shares in total.

Solution: Authorized capital = Rs. 20,000,000 Subscribed capital = 1,000,000 x Rs. 10 = Rs. 10,000,000 Issued capital = 700,000 x Rs.10 = Rs. 7,000,000 Called-up capital = 700,000 x Rs. 8 = Rs. 5,600,000 Paid-up capital = 5,600,000 (6000 x Rs. 8 ) = Rs. 5,552,000

RIGHTS ISSUE OF EQUITY SHARE

It

involves selling of ordinary shares to the existing shareholders.

in India requires that the new ordinary shares must be first issued to the existing shareholders on a pro rata basis of rights = existing share/ new share

Law

No.

FORFEITURE OF SHARES
By

becoming a shareholder a person enters into a contract with the company that he is liable to pay full price of the share to the company from time to time and as and when the calls are made by the company If he fails to comply the company can forfeit his shares Forfeiting means taking back the shares without giving any compensation to the shareholder

PROCEDURE
As

per Articles of Association the company has power to forfeit the shares only for non payment of call money Notice to the defaulting shareholder sent warning him about the forfeiture of shares On shareholders failure to pay the amount due in time a resolution to forfeit the shares is passed by the directors

EFFECT OF THE FORFEITURE

The

name of the share holder is removed from the register of members. The amount already received on these shares are forfeited to the company. The forfeited amount should be transferred to newly opened Share Forfeiture Account. Voluntary surrender of share also considered as forfeited share.

RESERVES
Funds or material set aside for future use.
They are the other component of the shareholders equity of a Company. Reserves appear under the head of Reserves And Surplus in the balance sheet.

TYPES OF RESERVES
Capital Reserve-The reserve which is not available for distribution to shareholders as dividends is stated as Capital Reserve. For example: Share Premium and Capital Redemption Reserve. Revenue Reserves-These reserves arise from the business operations of a Company and can be distributed to shareholders. For example: General Reserves. Statutory Reserves- The reserves that are necessary to comply with requirements of a Law, such as the Income Tax Act are called Statutory Reserves. For example: Investment Allowance Reserve and Export Profit Reserve.

Realized Reserves- These reserves represent cash or other assets received by a Company in an exchange transaction. For example Profit on sale of equipment. Unrealized Reserves- These reserves are the result of accounting entries without any underlying exchange transaction. For example- Revaluation reserve.

SOME OTHER RESERVES

Capital Redemption Reserve- When shares of a Company are redeemed or purchased wholly out of the Companys Profits, or by a fresh issue, the amount by which the Companys share Capital is diminished or cancellation of the shares shall be transferred to a reserve called the Capital Redemption Reserve. Debenture Redemption Reserve- A provision that was added to the Indian Companies Act of 1956 during an amendment in the year 2000. The provision states that any Indian Company that issues debentures must create a Debenture Redemption Service to protect

Investment Allowance Reserve- The Income Tax Act allows a special allowance, known as investment allowance, for investments in any particular area. The company needs to ensure that some percentage of this allowance must be transferred to the investment allowance reserve. And the balance in the account is not available for dividends and bonus.