1. Chapter 1- Introduction to Companies
Chapter outcomes:
Different types of business organisations;
Meaning of company;
Types of companies;
Meaning and types of share capital
Meaning and types of shares, Stock
Distinction Between Shares and Stock
Issue of shares;
Proforma journal entries
Exercises

2. Types of business organizations‘-
Sole Trader : When a business is owned and run by a single person, it is known as “Sole trading organization”.
Partnership firm: When a business is owned and run by more than one person, it is known as partnership.
Company: It is known as “joint stock company” in which the capital is contributed by the general public in the form of “share capital”

3. Meaning of “Company”
A company may be defined as “an artificial person created by law, having a corporate and legal personality distinct and seperate from its members, perpetual succession and a common seal”.
The essential characteristics of a company are as follows:
It is an incorporated (registered) association;
It is an artificial person created by law’;
It has a seperate legal entity;
It has a perpetual succession, i.e, it can be created and wound up by law only;
It has common seal, i.e., official signature of the company

4. Types of Companies There are three types of companies:
Private Sector Companies: Those companies which are started and run by private parties are known as “Private sector companies”
Public Sector Companies: Those companies which are started and run by government are known as “public sector companies”
Joint Sector Companies: Those companies which are jointly started and run jointly by the government and private business people.

5. Meaning and Types of Share Capital
Share capital means a particular amount of money used in business for the purpose of earning revenue. Share capital is that part of the capital of the company which is represented by the total nominal value of the shares which it has issued. In the context of company law, this term is used in the following different senses.
The share capital is divided into the following four heads:
Nominal Authorized capital: Authorised capital refers to that amount which is stated in “Capital clause” of memorandum of Association as the share capital of the company. This is the maximum amount of capital authorised by capital market authority in Oman. For example- Mohammad- LLC has been incorporated with an Authorized Capital of OR 10,00,000 divided into 1,00,000 shares of OR 10 each.
Issued Capital: Issued capital refers to the amount of share capital issued to the public for subscription and allotment, say 65,000 shares of OR 10 each

6. Subscribed Capital: it is that part of issued capital which has been subscribed by the public, say 60,000 shares of RO 10 each
Called up Capital: It is that part of the subscribed capital which the directors have called up in order to carry on the business of the company, say RO5 per share has been called up, i.e., 60,000 x RO 5 = RO 3,00,000. It is the amount of capital which is paid up by the shareholders.
Paid up Capital: It is that part of the issued capital which is actually received in cash by the company, say, RO 2,90,000 (one share holder holding 5000 shares failed to pay the RO 2 per share)

7. Uncalled Capital: it is that part of subscribed capital which has not yet been called up by the directors. The difference between the subscribed capital and called up capital is represented by the uncalled capital.
Reserve Capital: A limited company may, by special resolution, determine that any portion of its share capital which has not been already called up shall be capable of being called up. Except in the event and for the purposes of the company being wound up. This uncalled portion of the share capital is called Reserve Capital. In other word ‘Reserve capital’ refers to the amount of capital uncalled by the company and kept as a reserve for future use.

8. Meaning and classes of Shares
Share is fractional part of the capital and forms the basis of ownership in a company. Act defines share as ‘Share’ in the capital of a company and including stocks. It is an expression of proprietary relationship between a shareholder and the company. In company it is legal entity distinct from the assets it represents.
Shares are classified as moveable property, transferable in the number specified by the articles.
A certificate under the common seal of the company is issued to the shareholders to provide them prima facie evidence of their title to the shares specified therein and is known as a Share certificate.

9. Distinction Between Shares and Stock
What is Stock
Stock is the aggregate of fully paid up shares legally consolidated and portion of which aggregate may be transferred or split up into fractions of any amount without regard to the original nominal amount of shares.
Distinction Between Shares and Stock
Shares are in units but stock is in lump holdings
Shares can be issued directly but stock cannot be issued directly
Share need not be fully paid but stock must be fully paid
Shares must be numbered but stock is never numbered
Shares cannot be transferred in fractional amount but stock can be transferred in fractional amount

10. Classes of Shares: There are two main classes of shares:
Ordinary Shares or Equity Shares: Equity shares are those, which are not preference share. Equity is the risk capital of a business. Equity shares have both higher expected returns and higher expected risk than preference shares. On winding up of a company, equity shareholders will receive the surplus, if any, after all the obligations have been met. They are also called as ownership share with voting right.
Preference Shares: The shares which have some preferential rights over the equity shares. Preference shareholders has the preferential rights as to the dividend and the refund of the capital. Preference shares can be subdivided in different classes. (a) Cumulative and non cumulative preference share (b) Redeemable and non redeemable preference share © Participating and non participating shares.

11. Features of Equity Shares:
It is a part of the capital of the company
It can be purchased or sold in a stock exchange
It has no cumulative rights to dividends
It can vote in the election of directors
It can take part in making of certain important company decisions.
It can participate in the profit of the company
It can purchase a proportionate part of future share issues (Right Issue)
It has the right to share in assets upon liquidation
Features of Preference Shares:
It has preferential rights to dividend at a fixed rate.
It has cumulative rights to dividend
It has preferential rights to assets of the company in the case of liquidation.
It is redeemable after the expiry of a period of ten years from the date of its issue
It can be purchased or sold in a stock exchange at a price above or below its face value.
It has no voting power and
It may or may not be converted into equity shares.

12. Issue of Shares at Par, Premium and Discount
Shares can be issued at par, or premium or discount
When shares are issued at a price equal to the face value, it is known as issue at par. For example, when RO.1 share is issued at RO.1
When shares are issued at a price higher than the face value, it is known as issue at premium. RO.1 share is issued at RO 1.200
When shares are issued at a price lesser than the face value, it is known as at discount. When RO. 1 share is issued at RO

13. Performa Journal Entries
The following entries are recorded for the issue of shares:
When the application money is received:
Bank Account Dr XXXX
Share application account Cr XXXX
(Being the application money received)
2. When the appplication money is transfered to share capital a/c:
Share application account Dr XXXX
Share Capital account Cr XXXX
(Being the application money transferred to share capital account)
2 (a) When the application money is refunded (Returned):
Share Application account Dr XXXXX
Bank Account Cr XXXX
(Being the application money refunded )
3. When the allotment is made:
Share allotment account Dr XXXX
Share capital account Cr XXXX
(Being the allotment money due)

14. Proforma Entries – contd.
4. When the share allotment money is received: Bank Account Dr. XXXX Share Allotment A/c CR. XXXX (Being the allotment money received) 5. When the first call money is due: Share first call A/c Dr. XXXX Share Capital A/C Cr. XXXX (Being the first call money due) 6. When the first call money is received: Bank Account A/C Dr. XXXX Share First call A/C Cr. XXXX (Being the first call money received)

15. 7. When the final call money is due: Share final call account Dr
7. When the final call money is due: Share final call account Dr. XXXX Share capital account Cr XXXX (Being the final call money due) 8. When the final call money is received: Bank Account Dr. XXXX Share Final Call Account Cr XXXX (Being the final call money received)
Exercise 1. Oman Textile Mills SAOG issues 10,000 ordinary shares of RO each payable RO on application; RO on allotment , RO in the first call and the balance in the final call. The company received application for 11,000 shares and allotment was made for 10,000 shares. All moneys due were fully received. Pass journal entries and ledger accounts in the books of the company

16. Calls in arrear and call in advance
When any share holder fails to pay allotment money, first call or final call, the amount not received by the company is known as “Calls in arrear”.
Calls in advance:
When any share holder pays any amount relating to calls prior to the due date, it is known as “call in advance”