B.Com 3rd Semester Notes Important for Exams.

 Company Accounts (Share Capitals)

  Introduction

A company is a voluntary association of persons formed for some common purpose, with capital divisible into parts, called as shares and with a limited liability. It is created by law that is why it is known as an artificial person with a perpetual succession and a common seal.

Definition & Meaning

Section 2(20) of the Companies Act, 2013 defines a "company" as

"A company incorporated under this Act or under any previous company law."

According to Section 2(67) of the Companies Act, 2013 "previous company law" means any of the laws specified below:-

1. Acts relating to companies in force before the Indian Companies Act, 1886;
2. The Indian Companies Act, 1866, 1882, 1956,1913;
3. The Registration of Transferred Companies Ordinance, 1942;
4. Any law corresponding to any of the aforesaid Acts;
5. The Portuguese Commercial Code;
6. The Registration of Companies (Sikkim) Act, 1961;

Characteristics of a Company

1. Association of Persons : A company is an association of persons formed for some common purpose. A private Ltd. company must have at least two persons except in case of one person company and a public company must have at least seven persons.
2. Separate legal entity : The company is created under law. It has a separate legal entity apart from its members. A company acts independently of its members. The company is not bound by the acts of its members and members do not act as agents of the company. A person can own its shares and can be its creditor too. The life of the company is independent of the lives of its members. The company can sue and be sued in its own name.
3. Transferability of shares : In case of public limited company shares are freely transferable. There is no need to get prior permission to sell the share in market. Under Articles of Association, the company can put certain restrictions on the transfer of shares but it cannot altogether stop it.
4. Limited liability : The liability of its shareholders is limited to the unpaid value of shares they have purchased. In case the company incurs huge liabilities, the shareholders can only be called upon to pay the unpaid balance on their shares. 
5. Optional Common Seal : A common seal is a seal with company's name engraved on it. As per companies Amendment Act, 2015, use a common seal has been made optional.
6. Separation of Ownership and Management :  The shareholder of a company are widely scattered. A shareholder may like to invest money but may not be interested in its management. The companies are managed by the Board of Directors.
7. Perpetual Existence : The company has a permanent existence. The life of the company does not depend upon the life of shareholders. The shareholders may come or may go but the company will go as forever.
8. Corporate finance : A Joint Stock Company, generally, raises large amounts of funds. The capital is divided into shares of small denomination. A large number of persons purchase shares and contribute to the capital of company. 
9. Capacity to sue : Company can and be sued in its own name.
10. Publication of Accounts : A Joint Stock Company is required to file annual statements with the Registrar of companies at the end of the financial year. The annual statements are available for inspection in the office of the Registrar.     

KINDS OF JOINT STOCK COMPANIES

 (I) On the basis of Formation

        Companies are of the following types :

1.  Chartered Companies :  These companies were formed in England by the grant of Royal charter such as Bank of England, East India Company etc. The powers and the nature of the business of a chartered company are defined by the charter which incorporates it.  
2.  Statutory companies : These are formed by a special act of the parliament or State legislature. Such companies are called statutory companies. The example of statutory companies are the Reserve Bank of India, the Life Insurance Corporation of India, the Food Corporation of India, Unit Trust of India etc. They are not treated as department of the Government. 
3. Registered companies : Companies registered under the Companies Act, 2013 or earlier Acts are called registered companies. Such companies come into existence when they are registered under the Companies Act, and a certificate of incorporation is granted to them by the Registrar.