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Unit 10: Share Capital

10.9 Summary Notes

Nominal, authorised or registered capital. This is the maximum amount of capital which it
is authorised to raise by issuing shares and upon which it pays stamp duty. As we shall see
later, when the original amount of the authorised capital is exhausted by issue of shares,
it can be increased by passing an ordinary resolution. (1) Issued capital, (2) Subscribed
capital, (3) Called-up capital and (4) Paid-up capital.

No company limited by shares and no company limited by guarantee and having a share
capital, shall have power to buy its own shares, unless the consequent reduction of share
capital is effected and sanctioned by the court in pursuance of s.100 to 104 or of s.402.
Further, no public company and no private company which is a subsidiary of a public
company can directly or indirectly (through loans or guarantee) provide fi nancial assistance
to any person to buy shares in the company or in its holding company.
Companies limited by shares have to issue shares to raise the necessary capital for their
operations. Issue of shares may be made in 3 ways. (i) By private placement of shares; (ii)
By allotting entire shares to an issue-house, which in turn, offers the shares for sale to the
public; and (iii) By inviting the public to subscribe for shares in the company through a
prospectus.
Offer for shares are made on application forms supplied by the company. When an
application is accepted, it amounts to an allotment. The expression allotment is not

defined under the Companies Act. It means and implies a division of the share capital
into defined shares of a particular value or of different classes and assignment of such

shares to different persons. The supreme Court in Sri Gopal Jalan and Co. v. Calcutta Stock

Exchange Association Ltd. AIR 1964 SC 250 defined allotment as “the appropriation but
out of the previously unappropriated capital of the company of a certain number of shares
to a person”.

A company is an artificial person and therefore, cannot act itself. It must act through some
human intermediary. The various provisions of law empower shareholders to do certain

things. They are specifically reserved for them to be done in company’s general meetings.
Minutes are a record of business transacted at meetings. Every organisation must keep
minutes containing a fair and correct summary of all proceedings of general meetings
of members and of Management Committee. It is the duty of the secretary to make this
record.

Every company must keep at its registered office proper books of accounts which shall

give a true and fair view of the financial affairs of the company. Section 209 lays down the
Books of Accounts to be maintained by a company. These books are open to inspection
by any director during business hours, as also by the Registrar of companies or an offi cer
authorised by the Central Government. Also the books of accounts should be retained for a
period of eight years. It is obligatory on companies to maintain accounts on accrual basis.

It is compulsory for every company to appoint qualified auditors to do the audit of the

accounts maintained by the company. The first auditors(s) can be appointed by the Board
of Directors within one month of the date of the incorporation of the company.
Section 225 makes provision for a resolution relating to appointment or removal of auditor.

A person who is a Chartered Accountant in practice is qualified to become an auditor. In
other words, he must be a member of the Institute of Chartered Accountants of India and
in practice.

The Central Government may appoint one or more competent persons as inspectors to
investigate into the affairs of any company

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