Features of Debentures

Debentures
Companies raise substantial amount of long term funds through the issue of debentures. The amount to he raised by way of loan from the public is, divided into small units called “Debentures”. Debenture may be defined as written instrument acknowledging a debt issued under the seal of company containing provisions regarding the payment of interest, repayment of principal sum. charge on the assets of the company etc. According to Sec. 2(12) of the companies Act ‘debenture includes debenture stock, bonds and any other securities whether constituting a charge on the assets of the company or not”.

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Features of Debentures:

1) It is a debt takes by the company from public and financial institutions.

2) Generally, debentures are issued for long period of time.

3) Debentureholders are entitled to receive periodical payment of interest (usually six months) at a fixed rate.

4) Interest on debentures has to he paid irrespective of profit.

5) Debenture holders arc entitled  the repayment of the amount lent as per the terms of contract
6) Debentureholders don't have voting rights.
7) Generally dehentureholders have fixed or floating charge on the assets of the company

Issue of Shares at Premium | Issue of shares at Discount

Issue of Shares at Premium

When shares are issued at a price higher than the face value, they are said to be issued at premium. Generally premium is included in the allotment money. In such a case the Journal entry is.

Share Allotment A/c Dr.
To Share Capital A/c To Share Premium A/c
(with the amount due one allotment
including Premium)
(with share money)
(with Premium money)

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Share Premium Account appears in balance sheet under Reserves and Surplus

According to Sec.78 of the Companies Act. 1956, the Share Premium (or Securities Premium) may be applied for the following purposes:

(i) To issue fully paid bonus shares to the members.

ii) To write off preliminary expenses of the company.

(iii) To write off the expenses of or the commission paid or discount allowed on any issue of shares or debentures of the company.

(iv) To provide for the premium payable on the redemption of any redeemable preference shares or of any debentures of the company.

Issue of shares at Discount

When shares are issued at a price lower than the face value, they are said to be issued at a discount. The discount on issue of shares must be treated as a loss of capital nature and not of revenue nature. According to Sec. 79 of the Companies Act, 1956 a company may issue the shares at a discount only if the following conditions are fulfilled.

(i) The share must belong to a class already issued.

ii) The issue must be authorised by an ordinary resolution of the company.

iii) The sanction of the Company Law Board must be obtained.

iv) The resolution must specify the maximum rate of discount at which the shares are to be issued.

v) At least one year must have elapsed since the date on which the Company was entitled to commence business.

Calls in Arrears and Calls in Advance

Calls in Arrears and Calls in Advance

Calls in Arrears refers to that portion of the capital, which has been called up but not yet paid by shareholders. In other words the allotment or call money called by the company but not paid by the shareholder till the last day fixed for payment there of, is called Calls in Arrears. Share Allotment Account and call Accounts will show debit balances equal to the total unpaid amount. Generally, such amount is transferred to special account called Calls in Arrears Account. The main purpose is to close allotment and other call accounts. The entry is

Calls in Arrears Account Dr
To Share Allotment Account
“Share Call Account.

When the money is received from defaulting shareholder the following entry is passed:
Bank Account Dr
To Calls in Arrears Account:

The amount of Calls in Arrears is shown by a way of deduction from the called-up capital in the on Balance Sheet on the liabilities side under the head ‘share capital’. Interest calls in Arrears may be received from share holders, if the Articles of Associate so provide . If the company has adopted ‘Table A then it can charge interest @ 5% pa. from the due date to the date of actual payment.

Calls in Advance arises when there i an oversubscription of shares. The excess application money received is adjusted against the amount due on allotment or calls. Calls in Advance Account is shown separately from the paid-up capital. No dividend is payable on Calls in Advance.


Interest on calls on Advance: A company has to pay interest on calls in advance from the date of receipt of the amount till the date when call is due for payment. The rate of interest is determined by the Articles of Association.

If Articles of Association is silent then provision of Table A will apply which provides for payment of interest on calls in advance at the rate of 6 per cent pa. The entry for Payment on calls in advances is.

Interest on Calls in Advance A/c Dr.
To Bank Account

Interest on calls in advance appears account appears on the asset side of the balance sheet till it is written off.

Capital IQ Interview Questions - Kinds of Joint Stock Companies

Kinds of Joint Stock Companies

Companies can be classified on the basis of certain characteristics like (i) incorporation (ii) liability and (iii) membership.

Classification on the basis of Incorporation

1) Statutory companies. Statutory companies are formed by the special Act passed by the parliament or state assemblies examples: Reserve Bank of India, Life Insurance Corporation etc.
2) Registered Companies. These are the companies formed and registered under the Companies Act.

Classification on the basis of liability

1) Companies limited by shares. In case of such companies liability of each member is limited to the external of the race value of shares held by him.

2) Companies limited by Guarantee. In case of such companies liability is limited to the extent of the guarantee given to contribute to the assets of the company in the event of its wound op. If the guarantee is given to addition to the shares then the total liability shall he equal to the unpaid amount, on shares and the amount of guarantee given.

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3) Unlimited Companies: In case of unlimited companies the liability of the members is unlimited and members are personally liable to the creditors of the company for making up the deficiency. Such companies are rarely formed these days.

Classification on the basis of membership

1) Private Companies: A private company means a company which by its articles (i) restricts the right to transfer its shares (ii) limits the number of its members to fifty excluding past or present employees of the company who are members of the company and (iii) Prohibits any invitation to the public to subscribe for any shares or debentures of the company.

2) Public Companies: Public companies are those companies which are not private companies.
Classes of Shares: Total capital of the company is divided into units of small denomination. Each unit into which capital of the company is divided is called a share. If the total capital of a company is Rs. 50,00,000. It can be divided 5,00,000 units of Rs. 10 each then unit of Rs. 10 is a share of Rs. 10 each.
According to Companies Act, 1956 a company can issue two classes of shares, namely Preference shares and Equity shares.

Preference Shares. According to companies Act, preference share is that part of the share capita) of the Company which enjoys preferential rights as to (a) payment of dividend at a fixed rate and (b) return of capital on the winding up of the company.

Capital IQ Interview Questions - Characteristics of a Company

According to Justice Marshall a company is ‘an artificial being, invisible. intangible ind existing only in the contemplation of Law.’’ According to Sec.3(1) of the Companies Act defines a company as ‘company formed and registered under this Act, or an existing company’. An existing company means a company formed and registered under any of the former companies Acts.

Characteristics of a Company 

1) It is a Voluntary association of person.

2) A company has a separate legal existence. It can hold, purchase and sell property, can enter into contracts with others in its name.

3) It has a perpetual or continuous existence. Its existence is not effected by the death, lunacy or insolvency of any member. Members may he changing from time to time, but the company goes on for ever.

4) The liability of the members is limited to the extent of the face value of shares held by them.

5) The shares in a joint stock company are freely transferable, except in case of private companies.

6) It has a common seal. Being an artificial person it can act only through natural persons, called Directors.
All documents prepared by •directors will be valid only when it contains the common seal.

7) There is a separation of ownership and management. A company is owned by shareholders and managed by a separate body called ‘Board of Directors’.

8) In a public limited company, the minimum number of members is seven and there is no maximum limit. In case of private limited companies the minimum number is two and the maximum number is fifty.

9) A company comes into existence only after its registration under the companies Act. A company from incorporation to liquidation is governed by various provisions of the companies Act.