Discuss the restrictions that have been Idaced upon the first allotment of shares by a company

Where a prospectus is issued by a company inviting offers from .the public to subscribe for its shares, a person who applies for shares makes an ofTer to

subscribc for them and the company accepts the offer by

allotment of share or reject it by intimating and refunding the shareApplication moncy. Thus an application for shares is an offer to take shares and

allotment of shares is the acceptance of that offer by the comIHm,’ and it creates a binding contract between a com I) an” and its shareholdel’, It is on

allotmcnt that shares come into existence. Rc-issuc of forfeited shares is not an “allotment”. so as to bring shares i oto existencc sincc su.ch re-issue

occurs as a result of the sale of the forfeited shares and not of an allotment thereof [Sri Gopa Jaan & Co. J’-:’. Caclltta Stock Exchange Association Ltd.,

Define ‘Share’ and ‘Stock’ and distinguish between them

Share. A share in the company me1ns a unit into which the total

capital ofthe company is divided. Sec. 2 (46) of the Companies Act defines a ‘sharc’ as ‘a share in the share capital of a company and includes stock

except where a distinction between share and ‘state is expressed or implied’. In simple words, it implies the interest of a shareholder in the company

measured in tenus of money and made up of diverse rights conferred on its holders by the Articles of the Company which constitute a contract between

him and the company. (Commissioner of Income Tax vs. Standard Vacuum Oil Company).

Stock. Stock is the aggregate of fully paid up shares, consolidatcd and divided for the purpose of convenient holding into different parts. Stock may be

consolidated or divided in any amount and transferred into any fractions and sub-divisions without regard to any face value of the shares.

A company cannot issue stock originally. Stock can only be obtained by conversion (0) if shares are fully paid and (b) if Articles pennit the conversion

requires passing of an ordinary resolution by members. Stock can

further bc reconverted into shares by passing an ordinary resolution. A shareholder enjoys the rights and privileges as they are enjoyed by a ‘Nominal’

capital.

2. Issued CupitaJ. It is that part of the authorised capital which is allotted by the company either for cash or for consideration other than cash and includes

shares allotted to the signatories to the Memorandum of Association.

3. Subscribed CapituJ. It is that portion of the issued capital at face value, which has been taken up by subscribers of shares in the capital either for cash

or for consideration other than cash. Thus, it is not necessary that the etire share capital must be subscribed. Where in a company, the shares are fully

paid-up the subscribed capital should be equal to the issued capital.

4. Culled-up C’pitul. It is that portion of the subscribed capital which has been called up or demanded on the shares of the company. For example, where

Rs. 5 has been called upon each of 50,000 shares of a nominal value of Rs. 10-, the called up capital shall be Rs. 2,50,000-.

5. Unc,lIed C’IJital. It is’that total amount which is not yet called up or demanded by the company on the shares subscribed, which the shareholders are

liable to pay as and when called. Thus, in the above case, the uncalled capital is Rs. 2,50,000-.

Companies Act defines a Government

Section 617 of the Companies Act defines a Government
Company as a company in which not less than 51% of the paid up share capital is held by the Central Government's, or any State Government or Governments, or by the Central Government and by one or more State Governments jointly and includes the subsidiary of a Government company. Provisions relating to a Government Company
1. As regard Audit. (a) The auditor of a Government company shall be appointed or reappointed by the Comptroller and Auditor-General of India (Sec. 619).
(b) The Comptroller and Auditor-General of India has the following powers in this regard:
He can direct the manner of audit and performance of his duties.He can conduct a supplementary or test audit of the company's accounts through certain persons authorizing them in this respect.
(c) The auditor will submit a copy of the audit report of the Comptroller and Auditor-General of India who shall have the right to comment upon the report.
(d) The report of the auditor together with the comments or supplements thereto by the Comptroller and Auditor-General of India shall

Advantages and Disadvantages of incorporation of It Company

A company incorporated under the Conlpanies Act has many advantages and merits in comparison to carry on a business in the fonn of a partnership
firm. The advant.ages of incorporating a company are:
1. The company on incorporation obtains independent corporate eXistence. It is vested withjan independent legal personality distinct from its members. It
becomes a body corporate capable of immediately functioning as an incorporated individual.
2. Limited Liltbility. Limited liability is another major merit of incorporation. The company, being a separate entity, leading its own business life, the
members are not liable for its debts. The liability of members, as is usual, is limited by shares, each member is bound to pay' the nominal value of shares
held by him and uothing more. In enables even the less enterprising people to take part in industrial ventures.
3. Transferable Shares. Shares in a public company can be transferred easily without the consent of other members. In the words of Lord Blackburn,
"When Joint Stock Companies were established the greatest objective was that the shares should be capable of being easily transferred". According to
Section 82, "the share or other interests of any member shall be movable property, transferable in the manner provided by the articles of the company." In
the company, a member may sell his shares in the open market and get back his money, without effecting the capital structure of the company. This
facility encourages the potential investors to invest in shares of Joint Stock Companies and thereby help in the industrial deveiopment.
4. Perpetual Succession. As the company has separate legal existence independent of its memhers, it is not affected by death or insolvency of a member.


It has a perpetual existence. A partnership, on the other hand, is automatically dissolved by the death, lunacy or retirement of a partner, unless there is a
contract to the contrary. In modern industrial era this stability is of paramount importance.
5. Separate Property. The property of an incorporated company is vested in the corporate body. The company is capable of holding and enjoying property
in its own name. No member, not even all the members can claim ownership of any item of the company's assets.
6. Restriction on Purchase of own Shares. An incorporated company limited by shares or guarantee cannot purchase its own shares, except as a
consequence of reduction of capital, redemption of shares or other exceptional circumstances provided in the Act (Sec. 77). This restriction provides
some amount of protection to the interests of creditors and lends stability to the co.mpany. However, the Government has aUowed the companies to buy
back their own shares vide the Companies (Amendment) Act 1999 but subject to certain restrictions.
7. Right to Sue. As a legal person with separate entity from its. members, an incorporated company can sue each other like any other person and it can
also be sued by other persons.
8. Better Management. Management of the company can be vested in professionals and the members of the company can appoint capable persons to
manage the affairs of the company to the geneal interest of the shareholders. 9. A company gets the privilege of collecting money from the public.
10. No Restriction on Members. There is no lin1it on the maximum
number of members a company may have. Large membership makes it possible to collect huge amount of capital it requires for the smooth conduct of
the business.