CORPORATE FORM OF ORGANIZATION
The gradual growth of trade, commerce and industry during twentieth century, the
size of business activities had grown up, and the sole proprietorship and the
partnership forms of organizations did not supply all the capital needed. Therefore,
a new form of business organization came into existence where in the public was
invited to contribute capital. Such an organization is known as a Joint Stock
Company or simply a company or alternatively named as a corporation. Such joint
stock companies are established in Pakistan under Companies Act, 2017.
A Joint Stock Company or Corporation is a fictitious or artificial legal person
existing in the eyes of law. This legal person (Company) once created is distinct
from its owners, stockholders, shareholders or members. The Company can own
property, sue and be sued and generally carry on activities by its own name and
title through its officers and agents. Being a creature of statute, the scope of its
activities is dependent upon its memorandum of association and any activity
beyond its scope would be judged as invalid and ultra vires. The Companies are
thus governed by its relevant law under which it was constituted and registered.
There are two major classifications of joint stock companies. One is a private
company whose members are limited and cannot offer its shares to public for sale.
The second type is a public company whose members are unlimited and can offer
its shares to public for sale. Such shares/stocks once issued are usually traded on
the stock exchanges of the country.
BASICS OF CAPITAL STOCK:
The Capital stock denotes the contribution of funds made by shareholders/
stockholders in the company through purchase of shares/stocks of the joint stock
company. This is the main source of the company through which funds are
collected for conduct of business. The capital stock of a company is classified into
accounting record with different nomenclatures as deliberated below:
a) Authorized Capital
This is the total amount of capital divided into different classifications, duly
approved by the Controller of Capital Issue of Securities and Exchange
Commission of Pakistan, on the request of the Company after depositing
necessary fee. This also matches with the amount of capital authorized and
indicated in the memorandum of association of the company. The company
has the power to issue shares up to this authorized amount of capital. The
authorized capital is divided into shares of fixed amount like Rs. 10, Rs. 50
or Rs. 100 each share or. The amount of authorized capital with
classifications is indicated in the equity section of the balance sheet as
memorandum information. No accounting entry is passed for the authorized
capital.
b) Issued Capital
This represents the number of shares which have been offered to public
through issuance of prospectus or otherwise in the shape of cash or some
other considerations of assets or services rendered. The issuance of shares
can also be arranged through brokerage houses i.e. underwriters also acquire
all or major portion of shares and then sell such shares taking all gains or
losses from its resale.
c) Subscribed Capital
It is that part of issued capital which was subscribed by the potential
purchasers through their requests expressing intention of purchase to which
the company agreed. The subscription may be over or under. In case of over
subscription some modality is developed to maintain some rationale for
selection of issuance of shares. In case of under subscription usually the
shares are issued as requested by purchasers in all.
d) Called up Capital
The amount of money which was called up from the subscribers of shares
for making payment to the company.
e) Paid up Capital
The paid up capital is the amount of called up capital that has actually been
paid up by the subscribers/stockholders to the company.
f) Par Value of Stock
The par value of Stock denotes the amount as indicated on the face of the
share certificate and has been issued at that particular amount to the
stockholders. For instance, the share of Rs. 100 issued at Rs. 100 each is its
par value.
g) Market Value of Stock
The market value of the stock is the price at which the shares can be
purchased and sold each time. This value fluctuates from time to time in the
market at stock exchanges. The market value of stock depends upon the
amount of dividends growth and other economic factors in the country
which have influence over the corporate affairs.
h) No – par Value Stock
No par value stock is not assigned any par value by the company and its
memorandum of association. Such shares can be issued at any price without
the possibility of a minimum legal capital deficiency (discount factor).
i) Stated Value Stock
The stated value stock is no-par Stock to which the directors assign a
“stated” value per share. The stated value per share becomes the minimum
legal capital per share.
The shares of the company may be classified into ordinary (common) and
Preferred stocks to which Companies Act 2017 permits.