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Accounting for Share Capital — Part 1: Company, Share Capital and Issue of Shares

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Lesson

Accounting for Share Capital

Part 1 — the company, its share capital, and the issue of shares at par and at a premium.

In this lesson you will

Explain the features and kinds of companies, the categories of share capital and the kinds of shares
Pass journal entries for an issue of shares at par and at a premium
Record over-subscription with rejection and pro-rata allotment, and under-subscription
Explain private placement, employee stock option plans and sweat equity

Part 1 at a glance

Concept

What is a company?

Table of the features of a company: an artificial person created by law, a separate legal entity, limited liability, perpetual succession, transferable shares and separation of ownership from management
Feature	What it means
Artificial person, created by law	Comes into existence on incorporation under the Companies Act 2013
Separate legal entity	Owns property, contracts, sues and is sued in its own name
Limited liability	A member's liability is limited to the amount unpaid on his shares
Perpetual succession	Continues to exist whatever happens to its members
Transferability of shares	Shares of a public company can be transferred freely
Separation of ownership and management	Shareholders own it; an elected board of directors manages it

Concept

Kinds of companies

Table of kinds of companies by liability, number of members, control, ownership and listing: limited by shares or guarantee or unlimited; one person, private with two to two hundred members, or public with seven or more; holding and subsidiary; government and non-government; listed and unlisted
Basis	Kinds of company
Liability of members	Limited by shares · limited by guarantee · unlimited
Number of members	One person company (1) · private company (2 to 200) · public company (7 or more)
Control	Holding company · subsidiary company
Ownership	Government company (government holds at least 51% of paid-up capital) · non-government company
Listing	Listed company (securities on a recognised stock exchange) · unlisted company