Regarding time limit to convert such share application money into capital the law was completely silent. Practically speaking allotment of shares cannot be kept pending indefinitely. It would also not be proper for a company to indefinitely hold up allotment of shares. However as per practice and keeping in view the Reporting of FDI provisions in FEMA, professionals used to allot share with 6 months 180 days of the receipt of application money.

A Financing Source Other than Share Capital and Reserves

Applicant paid money into your bank and you transferred their accounts to total shareholders capital account. All monies received in respect of the share issue were posted to the bank account and a share issue holding account until the shares were allotted. After share application account is the prospectus is issued, the prospective investors can then apply for shares. The companies act states that there are mainly two types of shares. (3) All monies payable on subscripttion of securities shall be paid through cheque or demand draft or other banking channels but not by cash.

Any user of the balance sheet information will have a clear view of the extra funds since they are separately identified. Earlier, under old Companies Act regime, many companies accepted share application money under private placement and utilized the same for the business purpose even without allotment of shares. Only Schedule VI of the Old Companies Act provided the manner to treat the same in the Balance Sheet of the Company.

What is the need for different types of shares?

A temporary share holding account is used to record money received on application and allotment. The capital raised by a company by way of issuing shares is known as Share Capital. In general, the share capital of a company is largely distributed. The minimum number of members in a private company is 2 and the maximum is 200. However, the minimum number of members required to incorporate a public company is 7 and there is no limit on the maximum number of members.

Chapter 1: Accounting for Share Capital

It is in respect to this that the share application money can be an asset on the balance sheet. Share application money is not a part of share capital because it is only application money and is not share capital. In view of this, share application money pending allotment should be treated as current liability in books of accounts and should be disclosed as a current liability and not as a part of share capital.

The applicants who are allotted shares are sent a Letter of Allotment, which indicates the number of shares allotted and the amount due on allotment. However, the applicants who are not allotted shares are sent a Letter of Regret along with a cheque for the refund of the application money. An investor buying a company’s shares usually pay in installments. They usually pay a certain amount with an application form as an offer to purchase the shares (on application). The company responds the offer by sending the investor a letter of allotment and requesting further payment (on allotment).

What are the different kinds of issues that an Indian company in India can make?

In other words regarding how long can the company show share application money in its Balance Sheet, company Law was silent. A share denotes a unit of equity ownership in a particular company. Share application money pending allotment is the amount for which the allotment is not made yet. A going concern uses all real and nominal accounts while preparing final statements.

However, it can have any number of ledgers which also includes personal accounts. Here, Share application is an account which accumulated money from all applicants. I forgot to emphasise the fact that, all Equity is personal account because capital is personal account. Shareholders are also called as external creditors and they fall into the category of personal accounts. Regarding handling of share application money in case of a private company things are still unstable. But after the above said amendment allotment of securities shall be completed within sixty days 60 days from the receipt of share application money.

A right issue is an issue on a certain date that is fixed by the issuer. These shares are usually offered to the existing shareholders before it is listed for trading on stock markets. Then you should balance liabilities by giving credit to capital account- liabilities increase by 1000₹. Meantime, any dividend paid, retained earnings will be debited. Here, Share application money is transferred to bank- assets increase by 1000₹.

Once the allotment letter is sent to the applicants, the allotment money becomes due on the allotment and becomes a part of share capital. In case company fails to allot securities against the share application money within the period of 60 days, it shall repay the application money within 15 days thereafter without interest. Before the amendment mentioned above there was no provision regarding the receipt and time period and purpose for utilization of Share Application Money.

• Regarding time limit to convert such share application money into capital the law was completely silent.
• A share denotes a unit of equity ownership in a particular company.
• Hence as per my opinion a private company can accept share application money more than its authorised capital bcoz share application money is not equal to paid up capital until allotment.
• Hence position in case of a Private Company shall remain same as it was applicable to a Public company before the above mentioned amendment.

Application of Shares

• The recognition of share application money in a balance sheet should be carefully recorded; otherwise, it will lead to misstatement of the financial position of a company.
• W.e.f 01-April 2014, Companies accepting Share Application money under private placement have to allot the securities against the Share Application money received within 60 days.
• Share application money pending allotment is the amount for which the allotment is not made yet.
• A going concern uses all real and nominal accounts while preparing final statements.
• (3) All monies payable on subscripttion of securities shall be paid through cheque or demand draft or other banking channels but not by cash.

Now, Section 42 of the Companies Act, 2013 puts prohibition over the said practice. W.e.f 01-April 2014, Companies accepting Share Application money under private placement have to allot the securities against the Share Application money received within 60 days. If the securities are not allotted within a period of 60 days, the whole application money is required to be refunded within 15 days from the date of completion of 60 days. If the company fails to repay the application money within the said 60 days period, it shall be liable to repay that money with interest @ 12% p.a. If a company gets over subscription for the issued shares, it has to reject some applications in full, accept some partially, and accept some applications in full.

A company incurs different types of expenses on the issue of shares. For example, stationery expenses, postage expenses, bank expenses, printing expenses, etc. The expenses incurred on the issue of shares are the capital expenditure of the company.

(5) No company offering securities shall release any public advertisements or utilise any media, marketing or distribution channels or agents to inform the public at large about such an offer. The call letter of the company must specify the amount of the call, mode of remitting money, address to which call money is required to be sent, and the last date for sending the money. Company is receiving money here in the form of application money.