COMPANY ACCOUNTS

• In law, ‘company’ is termed as an entity which is formed and

registered under the Companies Act, 1956 or an existing
company formed and registered under any of the previous laws
(an act or acts relating to companies before the Indian
Companies Act 1956).
• As per this definition of law, there must be a group of persons
who agree to form a company under the law and once so
formed, it becomes a separate legal entity with a distinct name
of its own.
• Its existence is not affected by any changes in the composition
of members. Generally, the capital of the company consists of
transferable shares, and members have limited liabilities.
 CHARACTERISTICS OF A
COMPANY
• Incorporated Association
• A company comes into existence through the operation of law.
Therefore, its incorporation under Companies Act is imperative (of
vital importance).
• Without this registration, no company can come into existence.
Being created by law, it is regarded as an artificial person.
• Also, the registration provides the status of domicile to the
company.
• Separate legal entity
• A company is a separate legal entity, which is not affected by
changes in its membership.
• Mathematically, the separation of entity of company and that of
members can be expressed as (n+1), where n is the number of
members and 1 refers to the identity of the company.
• Therefore, a company, being a separate
entity, can contract, sue, and be sued in its
corporate name and capacity.
• Perpetual existence
• Since a company has existence independent of its
members, it continues to be in existence despite the
death, insolvency, or change in the composition of
its members.
• Limited liability
• The liability of every shareholder of a company is
limited to the amount he/she has agreed to pay to
the company on the shares allotted to him/her.
• Ownership and Management
• The control and management of company’s affairs are
entrusted to the directors who are vested with the overall
responsibility of management and operational control, even
though the shareholders have contributed to the capital.
• Thus the managers (directors) of the company carry on the
business of the company on the basis of fiduciary (involving
trust) relationship with the shareholders.
• Common Seal
• A company is not a natural person; hence, it cannot sign the
documents in the same manner as a natural person. In order to
enable the company to sign its documents, it is provided with a
legal arm known as the common seal.
• The common seal is affixed on all documents by the person
authorized to do so; he /she signs for and on behalf of the
company.
• Right of Access to Information
• The right of the shareholders of a company to inspect its books
of account, with the exception of books open for inspection
under the Statue; it is governed by the Articles of Association.
• The shareholders have a right to seek information from the
directors by participating in the meetings of the company and
through periodic reports.
• Maintenance of Books
• A limited company is required by law to keep a prescribed set
of account books and any failure in this regard attracts
penalties.
• Periodic Audit
• A company has to get its accounts periodically
audited through the chartered accountants
appointed for the purpose by the shareholders on
the recommendation of the board of directors.
• Not a Citizen
• A company is not a citizen in the same sense as a
natural person is, thought it is created through the
process of law.
• It has a legal existence but does not enjoy the
citizenship rights and duties as are enjoyed by the
natural citizens.
• Share capital of a company
• Share capital is the amount of money contributed by
shareholders for the furtherance of objectives of the company
for which it was created.
• It is divided into six categories.
• Authorized, registered, or nominal capital
• This is the amount stated in the ‘capital clause’ of the
Memorandum of Association, with which the company is
registered.
• On registration, an ad valorem duty is paid on the amount of
authorized capital.
• Since the company is registered with a given amount of share
capital, on incorporation, it becomes entitled to issue shares of
that much amount and number.
• Hence, it also referred to as authorized capital.
• Issued capital
• It is the part of authorized capital, which is offered to the public
for subscription, including shares offered to the vendors for
subscription other than cash.
• Subscribed capital
• It is that part of issued capital that represents the face or
nominal value of shares subscribed for by persons i.e. applied
for by prospective shareholders and allotted by the com0any.
• This also includes the face value of shares issued by the
company for consideration other than cash.
• Called up capital
• It is the portion of subscribed capital that the directors require
the shareholder to pay on the shares allotted to them.
• The directors may decide to call the entire amount or part of
the amount of the face value of shares as the need may be.
• Paid up capital
• The amount of called-up capital, which has been actually paid
by the shareholders, is referred to as paid-up capital.

• Example

• A limited company has been incorporated with an authorized

capital of Rs 10,00,000 divided into 1,00,000 shares of Rs 10
each.
• It offered 90000 shares for subscription by the public and, out
of these 85000 shares were subscribed for.
• The directors called for an amount of Rs 6 per share and
received the entire amount except for Rs 2 per share on 500
shares. Calculate the amount of different categories of share
capital.