Issue of Shares | Basics | Part - 1 | Class 12 | Accounts

Rajat Arora

16 Dec 202217:11

Summary

TLDRThe video script is an educational lecture focusing on the basics of shares. It explains the concept of a company issuing shares to the public to raise capital, detailing the process and different types of shares including equity and preference shares. The lecture also covers the difference between authorized, issued, and subscribed share capital, and introduces terms like 'cold up' and 'paid up' capital. It further discusses the subscription process, including full, under, and over-subscription, and the concepts of calls in share capital. The instructor aims to clarify these financial terms to ensure a clear understanding of how shares work within a company.

Takeaways

😀 The session is a continuation of a series on 'Issue of Shares', focusing on the basics of shares and their categories.
📚 The presenter discussed the concept of 'Sapoj' as an example company needing funds and how it can raise capital by issuing shares to the public.
💼 The importance of understanding the difference between 'Equity Shares' and 'Preference Shares' was highlighted, with the former being entitled to dividends and the latter having priority in dividend and capital repayment.
📈 The presenter explained the process of issuing shares in parts, such as 'Application Money', 'Allotment Money', and 'Calls', which are payments made by shareholders at different stages of the share issuance.
🔢 The concept of 'Authorized Share Capital' was introduced, which refers to the maximum amount of share capital a company is authorized to issue as per its Memorandum of Association.
💹 'Issued Share Capital' was discussed, indicating the actual amount of capital that has been issued to the public for subscription.
📉 'Subscribed Share Capital' refers to the amount of shares that have been subscribed by the public, which may be less than what was issued, leading to 'Under Subscription' or more, leading to 'Over Subscription'.
🌐 The session also covered 'Cold' and 'Paid-up' capital, where 'Cold' refers to the amount called by the company and 'Paid-up' refers to the amount actually paid by the shareholders.
📝 The difference between 'Full Subscription', 'Under Subscription', and 'Over Subscription' was clarified, with examples to illustrate each scenario.
🔑 The presenter emphasized the importance of understanding these concepts to avoid confusion and to grasp the intricacies of share transactions.

Q & A

What is the primary topic discussed in the script?
-The primary topic discussed in the script is the basics of shares, including the concept of share capital, different types of shares, and the process of issuing shares by a company.
What does the term 'Equity Share' mean in the context of the script?
-In the script, 'Equity Share' refers to a type of share that represents an ownership stake in a company. Equity shareholders are entitled to a share of the company's profits and have voting rights.
What is the difference between 'Equity Shares' and 'Preference Shares' as mentioned in the script?
-Equity Shares and Preference Shares are two types of shares. Preference shareholders get dividends before equity shareholders and are paid back before equity shareholders in case of liquidation. However, they usually have no voting rights, unlike equity shareholders.
What is 'Authorized Share Capital' as discussed in the script?
-Authorized Share Capital is the maximum amount of share capital that a company is permitted to issue as per its Memorandum of Association. It is the limit up to which a company can issue shares to its shareholders.
What is 'Issued Share Capital' and how is it different from 'Subscribed Share Capital'?
-Issued Share Capital refers to the capital represented by shares that have been offered to the public for subscription and have been issued by the company. Subscribed Share Capital is the portion of the issued capital that has been purchased by shareholders. The difference lies in the fact that issued capital includes all shares offered, while subscribed capital only includes those that have been bought by investors.
What does the term 'Full Subscription' mean in the context of the script?
-Full Subscription in the script means that the total number of shares offered by the company for subscription has been fully taken up by the investors, meaning the demand for shares equals the supply offered.
What is 'Over Subscription' and how does it relate to the shares discussed in the script?
-Over Subscription occurs when the demand for shares exceeds the supply offered by the company. In the script, it refers to a situation where more investors want to buy shares than the number of shares available for subscription.
What are 'Calls' in the context of share capital as mentioned in the script?
-Calls in the script refer to the installments or partial payments made by shareholders towards the total amount due on the shares they have subscribed to. It is a method used by companies to collect the share capital in parts rather than in one lump sum.
What is the significance of 'Application Money' in the share issuance process?
-Application Money is the initial payment made by investors when they apply for shares during an initial public offering (IPO). It is usually a small percentage of the total amount payable on the shares and signifies the investor's commitment to purchase the shares.
How does the script define 'Allotment Money' in relation to shares?
-Allotment Money in the script refers to the amount paid by shareholders after their application for shares has been successful. It is the second installment paid towards the total amount due on the shares, following the application money.
What is the difference between 'Cold' and 'Paid-up' as terms used in the script?
-In the script, 'Cold' refers to the amount of money called by the company that has not yet been paid by the shareholders. 'Paid-up', on the other hand, refers to the amount that has been fully paid by the shareholders for the shares they hold.

Outlines

00:00

📈 Introduction to Shares and Share Capital

The script begins with a reintroduction to the topic of shares, emphasizing the importance of understanding the basics. It explains the concept of a company issuing shares to the public to raise capital. The company 'Sapoz' is used as an example to illustrate how a company might sell 20% of its shares to the public at a certain price, thereby raising a specific amount of capital. The explanation covers the idea of shareholders owning a part of the company and the terminology related to shares, such as 'share capital' and the difference between 'equity shares' and 'preference shares.' The script also touches on the order of preference for dividends and capital repayment in case of liquidation.

05:02

📚 Types of Share Capital

This paragraph delves into the different types of share capital, specifically 'Authorized Share Capital,' 'Issued Share Capital,' and 'Subscribed Share Capital.' It uses the example of a company's Memorandum of Association to explain 'Authorized Share Capital' as the maximum amount of capital a company can raise as per its charter. 'Issued Share Capital' refers to the capital issued to the public for subscription, and 'Subscribed Share Capital' is the amount that the public actually subscribes to. The paragraph also introduces the concepts of 'Full Subscription,' 'Under Subscription,' and 'Over Subscription' to describe different scenarios of public response to a share issue.

10:06

📉 The Process of Share Issuance

The script explains the process of issuing shares in parts, known as 'calls.' It introduces terms like 'Application Money,' 'Allotment Money,' and 'Calls,' which are payments made by shareholders at different stages of the share issuance process. The paragraph outlines the sequence of payments, starting with the initial 'Application Money' followed by 'Allotment Money' and subsequent 'Calls.' It also discusses the scenarios where a company might not collect the full amount in one go, leading to partial payments and the concept of 'calls.' The paragraph concludes with the idea of 'Full Payed' and 'Not Full Payed' in the context of the amount called by the company versus the amount paid by the shareholders.

15:07

🔍 Understanding 'Cold' and 'Paid Up' Concepts

The final paragraph focuses on clarifying the concepts of 'Cold' and 'Paid Up' in relation to share capital. 'Cold' refers to the amount of capital that the company has called for but not yet received, while 'Paid Up' is the amount that has been fully paid by the shareholders. The script uses examples to differentiate between 'Full Paid' and 'Not Full Paid' scenarios, emphasizing the importance of understanding when a share is considered 'Full Paid.' It also mentions the upcoming topics to be covered in the next class, such as 'General Entries' in the context of shares, and encourages the audience to grasp these theories for a better understanding of share transactions.

Mindmap

Keywords

💡Shares

Shares refer to the units of ownership in a company that are bought and sold on the stock market. In the script, shares are central to the discussion as they represent the portion of a company that an individual or entity owns. The concept is used to explain how a company can raise capital by selling shares to the public, as exemplified by the company 'Spos' selling a part of its shares to the public for a million rupees.

💡Shareholder

A shareholder is an individual or institution that owns one or more shares in a company. The term is crucial in the script as it describes the relationship between the company and the individuals who have invested in it by purchasing shares. Shareholders are entitled to a portion of the company's profits and have a say in how the company is run.

💡Share Capital

Share capital is the money that a company receives from shareholders in exchange for shares. It is a form of equity financing and represents the funds that a company has raised by issuing shares. In the script, the concept is used to explain the financial transactions where the company 'Spos' receives money from the public in exchange for shares, thus increasing its share capital.

💡Equity Shares

Equity shares, also known as common stock, represent ownership in a company and entitle the shareholder to a share of the company's profits, usually in the form of dividends. The script mentions equity shares as one of the types of shares a company can issue, highlighting their importance in shareholder value and company growth.

💡Preference Shares

Preference shares are a type of shares that offer certain preferences over equity shares, such as priority in receiving dividends and assets in the event of liquidation. The script explains that preference shares come with preferences, particularly in terms of dividend payments and capital repayment, before equity shareholders receive their share.

💡Authorized Share Capital

Authorized share capital refers to the maximum number of shares a company is permitted to issue as per its memorandum of association. It is a key term in the script, used to describe the limit on the company's ability to raise capital by issuing shares. For instance, if the memorandum of association states that a company can issue up to 20 million shares, this is its authorized share capital.

💡Issued Share Capital

Issued share capital is the number of shares that a company has offered to the public and that have been sold and are held by shareholders. The script uses this term to differentiate between the total shares a company is allowed to issue (authorized) and the actual shares that have been sold and are in circulation.

💡Subscribed Share Capital

Subscribed share capital refers to the shares that have been offered by the company and have been purchased by investors. In the script, this term is used to illustrate the portion of the issued shares that have been taken up by the public, representing the capital inflow from shareholders.

💡Full Subscription

Full subscription occurs when all the shares offered by a company are bought by investors. The script mentions full subscription as an ideal scenario where the demand for shares equals the supply, indicating a successful capital-raising effort by the company.

💡Under Subscription

Under subscription happens when the number of shares subscribed by investors is less than the number of shares issued by the company. The script uses this term to describe a situation where the company's capital-raising efforts do not meet the expected target, potentially indicating a lack of investor confidence.

💡Over Subscription

Over subscription occurs when the demand for shares exceeds the supply. Investors are willing to buy more shares than the company has issued. In the script, over subscription is presented as a positive scenario for the company, as it indicates high demand and interest in the company's shares, potentially leading to a successful capital raise.

Highlights

Introduction to the basics of shares and the concept of a company issuing shares to the public.

Explanation of the need for a company to raise funds and how it offers a part of its ownership in exchange for capital.

The difference between equity shares and preference shares, including their rights to dividends and capital repayment.

Detailed discussion on the types of share capital, including authorized, issued, and subscribed share capital.

Clarification on the terms 'fully paid,' 'under subscription,' and 'over subscription' in the context of share issuance.

The process of issuing shares in parts, known as 'calls,' and how 'calls' are made on investors.

Definition and importance of Memorandum of Association (MOA) and Articles of Association (AOA) in a company's structure.

How authorized share capital is determined and its significance in a company's capital structure.

The concept of 'calls' in share capital and the difference between 'calls in arrear' and 'calls in advance'.

Explanation of 'fully paid' shares and the conditions under which a share is considered fully paid.

The difference between 'cold' and 'uncalled' liabilities, and their implications for shareholders.

Introduction to the terms 'general entries' and their role in accounting for shares.

The process of share allotment and the factors that influence the decision to allot shares.

Discussion on the implications of 'calls' on the share capital and the responsibilities of shareholders.

The concept of 'calls in arrear' and how it affects the liability of shareholders.

Overview of the share issuance process from allotment to calls, and the terminology used at each stage.

The final call for the remaining amount on shares and the terms 'first and final call' and 'second and final call'.

Summary of key concepts and terminology related to shares, including 'fully paid,' 'calls,' and 'general entries'.