Class 12 Accounts: Issue of Shares Process

Study Notes

In the context of Class 12 accounts, the 'issue of shares' refers to the transfer of ownership of a corporation from one person or entity to another. This is often done to raise capital for a company by selling its stock to investors. When a business issues shares, it sells part of itself to its new shareholders. These shareholders now have equity in the company because they own a piece of the business.

The Issue of Shares Process

To better understand how the issue of shares works in Class 12 accounts, let's break down the process into several steps:

Decision Making: Before issuing shares, the board of directors must first decide if the company needs additional funds. This could be due to expansion plans, increased production capacity, or paying off debts. If the board decides that raising more money through share offerings would help the company achieve its goals, they will proceed with the issue of shares.
Authority: To execute the issue of shares, the directors need authority from the shareholders. They do this through a special resolution passed at a general meeting. A majority vote by shareholders grants the necessary approval.
Establishing Share Capital: The next step involves determining the total number of shares the company wants to issue. This establishes the share capital of the company. For instance, if a company decides to issue 1 million shares with a face value of $1 each, then the share capital of the company becomes $1,000,000 (1 million * $1).
Issue of Shares: After establishing the share capital and obtaining approval from shareholders, the company can proceed with issuing shares. This usually involves signing stock certificates which represent ownership in the corporation.
Payment for Shares: The final step is for investors to pay the face value or par value of the shares they purchase. Once payment has been received, the shares belong to the investor and the company's equity increases by the amount of the shares sold.

The issue of shares process helps raise money for a company while also increasing its number of shareholders. It allows businesses to grow, expand, and take on more significant projects that may not have been possible without additional funds. However, when companies decide to issue new shares, changes occur in their capital structure as well as in the proportionate interest in earnings and assets held by existing shareholders.

Description

Explore the process of issuing shares in Class 12 accounts, including decision-making, shareholder authority, establishing share capital, issuing shares, and payment procedures. Understand how issuing shares helps companies raise capital and expand their operations while impacting the company's capital structure and existing shareholders.