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    Corporate Accounting

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    Mohamed Raaziq
    The document discusses the process of issuing shares by a company. It describes the key steps as issuing a prospectus to invite public subscription, receiving share applications, and allotting shares once minimum subscription is reached. It also outlines the two main types of shares - preference shares that carry preferential rights to dividends and capital repayment, and equity shares which are ordinary shares that provide ownership rights but no preferential treatment. The procedure of issuing new shares must follow the rules prescribed by the Companies Act 2013.

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    Corporate Accounting

    Uploaded by

    Mohamed Raaziq
    35 views4 pages
    The document discusses the process of issuing shares by a company. It describes the key steps as issuing a prospectus to invite public subscription, receiving share applications, and allotting shares once minimum subscription is reached. It also outlines the two main types of shares - preference shares that carry preferential rights to dividends and capital repayment, and equity shares which are ordinary shares that provide ownership rights but no preferential treatment. The procedure of issuing new shares must follow the rules prescribed by the Companies Act 2013.

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    The document discusses the process of issuing shares by a company. It describes the key steps as issuing a prospectus to invite public subscription, receiving share applications, and allotting shares once minimum subscription is reached. It also outlines the two main types of shares - preference shares that carry preferential rights to dividends and capital repayment, and equity shares which are ordinary shares that provide ownership rights but no preferential treatment. The procedure of issuing new shares must follow the rules prescribed by the Companies Act 2013.

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    35 views4 pages

    Corporate Accounting

    Uploaded by

    Mohamed Raaziq
    The document discusses the process of issuing shares by a company. It describes the key steps as issuing a prospectus to invite public subscription, receiving share applications, and allotting shares once minimum subscription is reached. It also outlines the two main types of shares - preference shares that carry preferential rights to dividends and capital repayment, and equity shares which are ordinary shares that provide ownership rights but no preferential treatment. The procedure of issuing new shares must follow the rules prescribed by the Companies Act 2013.

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    of 4

    CORPORATE ACCOUNTING

    Issue of shares

    H. Mohamed Abdul Raaziq

    BC0150015

    Issue of Shares is the process in which companies allot new shares to shareholders. Shareholders


    can be either individuals or corporates. The company follows the rules prescribed by Companies
    Act 2013 while issuing the shares. Issue of Prospectus, Receiving Applications, and Allotment of
    Shares are three basic steps of the procedure of issuing the shares. The process of creating new
    shares is known as Allocation or allotment. Let us see the two types of shares of a company and the
    procedure for issue of shares that a company must follow. 

    Nature and Classes of Shares

    A share of a company is one of the units into which the capital of a company is divided. So if the
    total capital of a company is 5 lakhs, and such capital is divided into 5000 units of Rs 100/- each,
    then this one unit of amount 100 is a share of the company.

    Thus a share is the basis of ownership of the company. And the person who holds such shares and is
    thus a member of the company is known as a shareholder.

    Now the Articles of Association will contain some essential information about shares and share
    capital, like the classes of shares to be prescribed. In all, there are two types of shares a company
    can allot according to the Companies Act 2013. They have different natures, rights, and obligations.
    Let us take a look.

    Difference between Equity Shares and Preference Shares


    Preference Shares

    A preference share is one which carries two exclusive preferential rights over the other type of
    shares, i.e. equity shares. These two special conditions of preference shares are

     A preferential right with respect to the dividends declared by a company. Such dividends
    can be at a fixed rate on the nominal value of the shares held by them. So the dividend is first
    paid to preference shareholders before equity shareholders.

     Preferential right when it comes to repayment of capital in case of liquidation of the


    company. This means that the preference shareholders get paid out earlier than the equity
    shareholders.

    Other than these two rights, preference shares are similar to equity shares. The holders of preference
    shares can vote in any matters directly affecting their rights or obligations.

    Preference shares can actually be of various types as well. They can be redeemable or irredeemable.
    They can be participating (participate in further profits after a dividend is paid out) or non-
    participating. And they may be cumulative (arrears in demand will cumulate) or non-cumulative.

    Learn more about the Issue of Shares for consideration other than cash

    Equity Shares

    Equity share is a share that is simply not a preference share. So shares that do not enjoy any
    preferential rights are thus equity shares. They only enjoy equity, i.e. ownership in the company.

    The dividend given to equity shareholders is not fixed. It is decided by the Board of Directors
    according to the financial performance of the company. And if in a given year no dividend can be
    declared, the shareholders lose the dividend for that year, it does not cumulate.
    Equity shareholders also have proportional voting rights according to the paid-up capital of the
    company. Essentially it is one share one vote system. A company cannot issue non-voting equity
    shares, they are illegal. All equity shares must come with full voting rights.

    Issue of Shares

    When a company wishes to issue shares to the public, there is a procedure and rules that it must
    follow as prescribed by the Companies Act 2013. The money to be paid by subscribers can even be
    collected by the company in installments if it wishes. Let us take a look at the steps and the
    procedure of issue of new shares.

    Procedure of Issue of New Shares

    1] Issue of Prospectus

    Before the issue of shares, comes the issue of the prospectus. The prospectus is like an invitation to
    the public to subscribe to shares of the company. A prospectus contains all the information of the
    company, its financial structure, previous year balance sheets and profit and Loss statements etc.

    It also states the manner in which the capital collected will be spent. When inviting deposits from
    the public at large it is compulsory for a company to issue a prospectus or a document in lieu of a
    prospectus.

    2] Receiving Applications

    When the prospectus is issued, prospective investors can now apply for shares. They must fill out an
    application and deposit the requisite application money in the schedule bank mentioned in the
    prospectus. The application process can stay open a maximum of 120 days. If in these 120 days
    minimum subscription has not been reached, then this issue of shares will be cancelled. The
    application money must be refunded to the investors within 130 days since issuing of the
    prospectus.
    3] Allotment of Shares

    Once the minimum subscription has been reached, the shares can be allotted. Generally, there is
    always oversubscription of shares, so the allotment is done on pro-rata bases. Letters of Allotment
    are sent to those who have been allotted their shares. This results in a valid contract between the
    company and the applicant, who will now be a part owner of the company.

    If any applications were rejected, letters of regret are sent to the applicants. After the allotment, the
    company can collect the share capital as it wishes, in one go or in instalments.

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