MODULE NO.

3: CAPITAL STRUCTURE AND ACCOUNTS OF

COMPANIES

INTRODUCTION
In the case of an unlimited company, the articles shall state the number of members with which the
company is to be registered and, if the company has a share capital, the amount of share capital
with which the Company is to be registered. In the case of a company limited by guarantee, the
articles shall state the number of members with which the company is to be registered. In the case
of a private company having a share capital, the articles shall contain provisions relating to the
matters specified in sub-clauses (a), (b) and (c) of clause (iii) of subsection (1) of section 3; and in
the case of any other private company, the articles shall contain provisions relating to the matters
specified in the said sub-clauses (b) and (c). [S. 27]
SHARES
Section 2(46) defines a share as “a share in the share capital of a company and includes stock except
where a distinction between stock and share is expressed or implied”.
Shares can be described as the financial instrument issued by the company to raise funds from the
general public. A share represents fractional ownership in a body corporate. Thus, a share is the
smallest unit of the company’s overall net worth
Shares are the smallest unit of the company’s capital or can be said as a unit of equity. The holder
of such shares in a company is known as “Shareholders” (the owners of the company). These shares
can be issued to the public for raising the funds of the company for its expansion. The market used
for trading of shares is known as “Share Market” which deals in various markets, but the most
popular share markets are NSE (National Stock Exchange) and BSE (Bombay Stock exchange).
Meaning of Shares
The capital of a company is divided into units of a fixed denomination. Share refers to only such a
unit. It is therefore clear that a share is a fractional part of the company’s share capital. Otherwise,
share capital means the capital raised by a company by the issue of shares.

Definition of Shares
According to section 2 (46) of the companies act, a share means a share in the share capital of the
company and includes stock, except where a distinction between stock and shares is express or
implied. A share indicates certain rights and liabilities.
Shares are defined as the share capital of an organization. It gives the shareholder the right to hold
a specified amount of the share capital of the firm.
Shares can be described as the financial instrument issued by the company to raise funds from the
general public. A share represents fractional ownership in a body corporate. Thus, a share is the
smallest unit of the company’s overall net worth.
In a joint stock company, the capital is divided into very small units, say the capital is Rs 5,00,000
and it is divided into 50000 units of Rs. 10/- each. So, each unit or fraction is called Share. Every
share issued by the company is differentiated by its unique number.
The holders of the shares are known as shareholders, who are the real part owners of the enterprise.
Hence, the extent of ownership of a shareholder is based on their holdings in the company. The
return on the amount invested by the shareholder is termed as Dividend.
How does share market work?
Stock market primarily requires two parties for trading in the market, i.e., a buyer and a seller of
shares for which companies need to register themselves in a stock exchange market for selling their
shares to the various investors available in the share market. The investors need to open a Demat
account (an account for holding financial securities in electronic form) for trading in the share
market.
The third-party called financial broker also employed in the share market whose work is to guide,
buy and resale the shares for the investors who do not have much knowledge about the share
market but want to invest their sum in a market. The financial brokers help in selecting the most
profitable investment option for which they charge a fee called “commission”.
Let us understand it with an example:
Ajay wants to invest in a share market; thus, he can opt any of the two options:
1. He can buy the shares from his Demat account directly from the share market if he has a
knowledge of the share market conditions, or
2. If he does not have much knowledge about the share market conditions, he can contact the
financial broker for investing his sum in the share market for which he has to pay some
commission to the broker. Then the broker will deal in the market as per Ajay’s requirement.
Getting help from brokers is the safest and suitable option for new investors.
Forfeiture of shares is the annulment (cancellation) of the shares owned by a shareholder as a
penalty because of the non-payment of allotment and calls due to the company.
Along with the shares, the amount already paid to the company also get forfeited. The company can
either Dispose of or Reissue the forfeited shares.

TYPES OF SHARES

A. Preference shares: Preference shares by its name define preferential rights over other shares and
get the claims before ordinary or equity shares. Preference shareholders get a dividend in
priority at the time of dividend distribution. Even at the time of liquidation of the company, they
have the preferential right over capital repayment. Preference shares have various sub-types;
they are as follows:
 Cumulative preference shares: Preference shares usually bring a right to a definite rate of
dividend out of the company’s returns. This interest may endure from year to year;
subsequently, if there is any overdue dividend in one year it is considered as arrear and the same
is endured to the next and in consecutive years, then it is assigned as a cumulative preference
share.
 Non-cumulative preference shares: Instance with non-cumulative preference shares,
shareholders are authorized to claim dividends only if the company acquires sufficient returns.
If the company does not acquire adequate profit in any of the years, the dividend for such year
will not be paid to its shareholders, and the benefits of that year’s dividend will be eliminated.
This kind of shares is termed as a non-cumulative preference share.
 Participating preference shares: Occasionally, the preference shareholder has accustomed a
right to the second dividend; these shares are known as participating preference shares.
 Non-participating preference shares: In these shares, shareholders don’t have any right of the
second dividend or share in the company’s surplus profits. They don’t have the right to claim an
asset in case of winding up of the company.
 Convertible preference shares: An alteration benefit may be used as an allure to investors. The
convertible preference shareholder has a right to convert their preference share into equity
shares during a specified period of time.
 Non-convertible preference shares: The preference share, which cannot be converted into
equity shares at any point, are termed as non-convertible shares.
 Redeemable preference shares: The immunity for the company to redeem may also emphasize
the preference shares issue. Correspondingly, the preference share, which can
be reclaimed after a stated period or at the company’s attention, is termed as redeemable
preference share.
 Irredeemable preference shares: The shares that cannot be reclaimed or redeemed during the
company’s life span are known as irredeemable preference share.
B. Equity shares: Equity share is a primary source of finance for any company giving investors
rights to vote, share profits, and claim on assets. Equity shares are one of the most significant
sources of long-term financing. They are also known as owner’s equity or ordinary share. The
shareholders of such shares are the company’s absolute owner, but these shareholders get the
dividend paid only after the payment of the dividends to the preference shareholders. Equity
shareholders do not have the right to claim dividends on income or assets at the time of the
company’s liquidation.

 Authorized Share Capital: It is the maximum amount of capital that a company can issue. The
companies can increase it from time to time. For that, we need to comply with some formalities
and pay some fees to the legal bodies.
 Issued Share Capital: It is part of the authorized capital that the company offers to investors.
 Subscribed Share Capital: An investor accepts and agrees upon that part of the issued capital.
 Paid Up Capital: It is the part of the subscribed capital that the investors pay. Normally, all
companies accept complete money in one shot and therefore issued, subscribed, and paid
capital becomes the same. Conceptually, paid-up capital is the amount of money a company
invests in the business. It is also known as contributed capital.
 Rights Shares: Right shares are those that a company issues to its existing shareholders. The
company issues such kinds of shares to protect the ownership rights of the existing investors.
 Bonus Shares: When the company issues shares to its shareholders in the form of a dividend,
we shall call them bonus shares. There are various advantages and disadvantages of bonus
shares like dividend, capital gain, limited liability, high risk, fluctuation in the market, etc.
 Sweat Equity Share: Sweat equity shares are issued to exceptional employees or directors of
the company for their exceptional job in terms of providing know-how or intellectual property
rights to the company.
 Treasury Stock: Treasury stock means the share that the company has bought back.
 FEATURES OF SHARES
Preference Shares

o Prior Claims: At the time of

dividend distribution or in case of liquidation of the company, preference shareholders have a
prior right to claim on the company’s asset and dividend’s sum.
o Fixed Rate of Dividend: The rate of dividends accustomed to the preference shareholder is fixed;
thus, they have less hazardous than equity share. However, the participating preference
shareholder enjoys a fixed dividend and participates simultaneously with the equity shareholder
in the extra dividend.
o Conversion to Equity Share: Few preference shares are of convertible nature, i.e., they can
convert into equity share within a stated duration of an agreement. These shareholders convert
their preference share into equity share to raise their wealth.
o No Voting Rights: In general, preference shareholder doesn’t have any voting rights in the
events of the company. However, in exceptional circumstances such as the verdict regarding the
liquidation of the company, devaluation, reimbursement of share capital, they also can vote.
Equity Shares

 Enduring Capital Base: These shares represent the company’s long-lasting capital base, i.e., the
sum returned to the shareholders only after the liquidation of the company. However, it is not
sure what amount will shareholders get at the time of liquidation as the shareholders will get
their share of profit only if all the preferential claims have settled.
 No Precise Dividend: The sum of dividend on equity shares is not fixed so far, as the amount of
dividend is the balance amount left after the holding of income and disbursement of dividend
to the preference shareholders. Furthermore, the equity shareholders cannot pressurize the
company to grant them dividends despite sufficient earnings. The company has full wisdom over
this affair.
 Polling Rights: Being an owner of the company, the equity shareholders have the full right to
make a vote in the company’s matters. An equity shareholder acquires one vote for each share
 they hold. If the equity shareholder is not capable of attending the company’s general meeting,
he/she can appoint a proxy on his behalf to participate in the meeting.
 Principle for Enhancing Borrowed Capital: With accustomed leverage ratio, further borrowed
capital can be lifted with a hike in the equity share capital. It implies that these shares design
the fundamental for enhancing debts.
 Public circulation or Private Arrangement: Equity shares are depleted to the public over a
prospectus advertised in the newspaper. Generally, a new company issues its share at par, and
a company with goodwill in the market may issue its share at a premium or on discount. The
underwriters such as financial institutions, brokers, and bankers underwrite these issues, and
these underwriters assure that if the public does not purchase the shares, they will buy it
instead.

RULES REGARDING ISSUE OF SHARES

What is the Issue of Shares? The meaning of the Issue of Shares is that the shares of an enterprise
or any financial asset are distributed among shareholders who wish to purchase them. These
shareholders can be either individuals or corporates who take part in buying the shares at a specific
price.
Let us understand the concept of share allocation with the help of an example.
A company called XYZ has a total capital of Rs. 6 lakhs. It has divided the capital into 6000 units of
shares each amounting to Rs. 100. Therefore, you can see that each unit or share of the company
costs Rs. 100. Individuals or corporations can purchase the share at this price. Hence, holding a share
in an organization is often regarded as partial ownership as well. It is for the same reason that
anyone holding a share is termed as a shareholder. PROCESS AND RULES REGARDING ISSUE OF
SHARES
When a company wishes to issue shares to the public, there is a procedure and rules that it must
follow as prescribed by the Companies Act 2013. The money to be paid by subscribers can even be
collected by the company in instalments if it wishes. Let us take a look at the steps and the procedure
of issue of new shares.
The following steps are involved in the process for the issue and Allotment of Shares.
Step 1: Board resolution
Step 2: Passing of special or ordinary resolution
Step 3: Filing of necessary forms
Step 4: Approval of the ROC

ISSUE OF PROSPECTUS

↓
RECEIVING APPLICATIONS

↓
ALLOTMENT OF SHARES
o Issue of Prospectus: Before the issue of shares, comes the issue of the prospectus. The
prospectus is like an invitation to the public to subscribe to shares of the company. A prospectus
contains all the information of the company, its financial structure, previous year balance sheets
and profit and Loss statements etc. It also states the manner in which the capital collected will
be spent. When inviting deposits from the public at large it is compulsory for a company to issue
a prospectus or a document in lieu of a prospectus.
o Receiving Applications: When the prospectus is issued, prospective investors can now apply for
shares. They must fill out an application and deposit the requisite application money in the
schedule bank mentioned in the prospectus. The application process can stay open a maximum
of 120 days. If in these 120 days minimum subscription has not been reached, then this issue of
shares will be cancelled. The application money must be refunded to the investors within 130
days since issuing of the prospectus.
o Allotment of Shares: Once the minimum subscription has been reached, the shares can be
allotted. Generally, there is always oversubscription of shares, so the allotment is done on pro-
rata bases. Letters of Allotment are sent to those who have been allotted their shares. This
results in a valid contract between the company and the applicant, who will now be a part owner
of the company. If any applications were rejected, letters of regret are sent to the applicants.
After the allotment, the company can collect the share capital as it wishes, in one go or in
instalments.

DISTINCTION BETWEEN PREFERENCE SHARES AND EQUITY SHARES.

BASIS FOR
EQUITY SHARES PREFERENCE SHARES
COMPARISON

Meaning Preference shares are the shares that carry

Equity shares are the ordinary
preferential rights on the matters of
shares of the company
payment of dividend and repayment of
representing the part
capital.
ownership of the shareholder
in the company.

Payment of The dividend is paid after the Priority in payment of dividend over equity
dividend payment of all liabilities. shareholders.

Repayment of
In the event of winding up of In the event of winding up of the company,
capital
the company, equity shares preference shares are repaid before equity
are repaid at the end. shares.

Rate of dividend Fluctuating Fixed

 Redemption No Yes

Voting rights Equity shares carry voting

Normally, preference shares do not carry
rights.
voting rights. However, in special
circumstances, they get voting rights.

Participation in
Equity Shareholders holders Preference Shareholders do not have the
Management
have the right to participate in right to participate in the management
the management decisions. decisions.

Convertibility
Equity shares can never be Preference shares can be converted into
converted. equity shares.

Arrears of Equity shareholders have no

Preference shareholders generally get the
Dividend rights to get arrears of the
arrears of dividend along with the present
dividend for the previous
year's dividend, if not paid in the last
years.
previous year, except in the case of
noncumulative preference shares.

Risk Preference Shareholders are at a lower risk

Equity Shareholders are at a
compared to Equity Shareholders.
higher risk compared to
Preference Shareholders

DEBENTURES
Debentures are the certificate or the creditorship securities issued by the company to the public
when there is a need of capital for expansion and development, but the company don’t want to
uplift their share capital. They are the liability of the company which has to be repaid in a specific
time period; however, a feasible alternative of term loans for companies.
FEATURES OF DEBENTURES
• Borrowed Funds: Debentures are the capital funds that are borrowed by the authority bodies
from the public while seeking for a capital; however, the company needs to repay the capital to
the investors within a stipulated period of time.
• Fixed-rate of interest: It is always issued with a fixed rate of interest which is payable once in
every six months or annually to the investors as decided by the shareholders in the annual
general meeting.
• Compulsory payment of interest: The company is obligated to the debenture holder interest
payment in priority irrespective of the condition of profit or loss in their business.
• Security: Debentures can be secured against the assets of the companies even if the company
becomes insolvent debenture holders will get their money by selling the assets of the company.
• Redemption: Redemption of debenture implies paying back of the sum to the debenture
holders against the issued debentures as mentioned in the company’s prospectus on the
completion of a fixed period of time or date at par, premium or discount.
• No voting rights: Debenture holders are the creditors of the company; thus, have no right to say
or make a vote on any internal matters of the company until their rights are being affected or
the company asks their opinion in special circumstances.
• Appointment of Trustee: At the time of issuing of debentures to the public investing in your
company, a deed is signed by the person appointed as trustee, the trustee is supposed to ensure
that the borrowing firm fulfils its institution.

• Convertibility: Debentures has an option of convertibility, i.e., the company may issue
convertible debentures at the option of debenture holders which are convertible into equity
shares.
 TYPES OF DEBENTURES

A. ON THE BASIS OF REGISTRATION

 Registered Debentures: Debenture holders whose full details such as name, phone number,
address are retained and registered under the company’s register can only claim for such
debentures, transfer of such debentures also requires registration and are not transferable by
simply delivering documents to one another.
 Bearer Debentures: These debentures are the unregistered debentures of the company, and
therefore the company does not retain any information about the investors in their register like
registered debenture holders. They are payable to the bearer or holder of the security and are
easily transferable by the holder to any person with his consent of transferring.
B. ON THE BASIS OF SECURITY
Secured debentures: Secured debentures are the debentures which are charged wholly or partly
over the assets of the company, i.e., either floating or fixed charges where floating charges
implies charges on all assets of the company and fixed charges indicates charges on the
particular asset of the company; and Such charges must be registered within 30 days from the
date of issue of the debenture.
Unsecured debentures: Unsecured debentures are not secured wholly or partly over the assets
of the company, hence can be mortgaged easily, and the holders of such debentures are
unsecured creditors of the company; thus companies do not prefer to issue such debentures
very frequently now-a-days.
 C. ON THE BASIS OF REDEMPTION
 Redeemable Debentures: These debentures can be redeemed either at par, premium or
discount after a certain period of time or on the expiry of the term as well as can be called for
redemption by the company on demand of debenture holders on the lump sum basis.
 Irredeemable Debentures: Company has no constraint or is not bound to repay such debentures
during its endurance as these debentures are not issued with any specific redemption date, and
thus are perpetual in nature; they can either redeemed at the time of winding up of the company
or on the occurrence of an any uncertain event.
D. ON THE BASIS OF CONVERSION
 Convertible Debentures: These debentures are considered as long-term unsecured debts of the
company. However, it can be converted into equity or preference shares by the holders as and
when required at the rate declared in the agreement signed at the time of the issue of
debentures.
 Non- Convertible Debentures: Non- Convertible Debentures will always remain the debt of the
company, and cannot be converted into shares at any point as they are the fixed income
instrument without any collateral against which the company pays a certain interest after a
specific duration of time, i.e., on maturity.
E. ON THE BASIS OF PRIORITY
• Preferred Debentures: During the time of winding up of the company, the holders of the
preference debentures have a first right or priority to get payment of their debentures.
• Ordinary Debentures: The holder of such debentures gets payment after the payment of
preference debenture holders at the time of winding up of a company. ADVANTAGES OF
DEBENTURES
1. The company without giving ownership rights can raise long-term funds.
2. Interest amount to be paid on debentures remains constant irrespective of any fluctuations in
the profit of the company.
3. At the time of liquidation, debenture holders are on top priority to claim on the assets of the
company.
4. Debentures are less risky than shares from an investors point of view as investing in debentures
is the safest option of investment though it will always give a profit in return. Disadvantages of
Debentures
1. They are the creditors of the company; thus don’t have any voting rights in the matters of the
company.
2. Interest on debenture is fully taxable on the company’s income.
3. It becomes challenging to pay debenture capital when the economy faces crises like depression.
4. It increases the cost of capital because of brokerage, commission, etc.
 RULES REGARDING ISSUE OF DEBENTURE/PROCESS OF ISSUING DEBENTURES Process for
the Issue of Debentures

a) Hold a Board Meeting: A company needs to hold a Board Meeting to take into account and pass
resolutions for the following items:
1. Issue of Debentures;
2. Approving the Offer Letter;
3. Approving Private Placement of shares;
4. Debenture Subscription Agreement;
5. Opening of a bank account; and
6. Calling of the EGM (Extraordinary General Meeting).
b) Call an EGM: The Company also requires to call an EGM (Extraordinary General Meeting) to
consider and pass a special resolution for the following items: 1. Increment in the borrowing
capacity of the company;
2. Issue of the Non-Convertible Debentures.
c) File MGT-14 with ROC: The Company needs to file MGT-14 with the ROC (Registrar of Company),
within thirty days of passing Special Resolution in the EGM.
d) Maximum Limit: The Company needs to restrict the offer letter to a maximum of 200 investors
in any financial year;
 e) Investment Size: The investment size for each investor should not be less than Rs. 20000.
f) Letter of Offer: The Company needs to dispatch the letter of offer to the investors and open a
bank account.
g) File Offer Letter with ROC: The directors of the company need to file the offer letter with the
ROC and Form GNL-2, PAS 4, and PAS 5.
h) Receive Money from Investors: The directors then collect application money from the investors
for the allotment of debentures.
i) Convene a Board Meeting: The Company requires to hold another board meeting after the
closure of offer to discuss the agendas given below:
1. To allot its debentures within sixty days starting from the date of receiving application
money;
2. To approve the agreement for charge creation;
3. To approve the debenture trust deed.
j) File CHG-9: Within thirty days of creating a charge on assets, the company needs to file Form
CHG-9 with the ROC (Registrar of Companies).
k) Restriction on using Application Money: The issuer company cannot use the funds collected
until it allots its debentures to all the investors.
l) File Return of Allotment: The director of the issuer company needs to file the Return of
Allotment in Form PAS 3 with the Registrar of Companies within fifteen days of allotment.
m) File the Corporate Action: The issuer company needs to file its Corporate Action within two
working days of allotment.

DIFFERENCE BETWEEN DEBENTURES AND SHARES

Point of Difference SHARE DEBENTURE

A share is a part of the company’s A debenture is a part of the

Ownership
share capital. company’s borrowed capital.

The return on shareholdings is The return on debentures is known

Return
known as Dividend. as Interest.

The payment of interest is a

Charge v. The payment of dividends is an charge. It means the company
Appropriation appropriation out of profits. needs to pay the interest even if it
incurs losses also.

Shareholders are not given

Debenture Holders are given
Priority preference at the time of
priority over Shareholders.
liquidation.
 Debentures are usually secured,
Shares are not secured, i.e., does
Security i.e., carry a fixed or a floating
carry any charge on assets.
charge over the assets.

Shareholders cannot convert their Debentures Holders can convert

Convertibility
shares into debentures. their debentures into shares.

Shareholders are given voting Debenture holders are not given

Voting Rights
rights. any voting rights.

Shareholders are known as Debenture holders are known as

Owner v. Creditor
owners of a company. creditors of a company.

Quantum Dividend on shares is an Interest on debentures is a charge

appropriation of profit. against profit.

Trust Deed No trust deed is executed in case When the debentures are issued
of shares. to the public, trust deed must be
executed.

BOOKS OF ACCOUNTS AND FINANCIAL STATEMENTS OF COMPANY

Books of Accounts & Financial Statements: Every company shall prepare and keep its books of
accounts and financial statement for every financial year which give a true and fair view of the state
of the affairs of the company and explain the transactions and the accounts shall be kept on accrual
basis on double entry system of accounting.
Financial statements are written records that convey the business activities and the financial
performance of a company. Financial statements are often audited by government agencies,
accountants, firms, etc. to ensure accuracy and for tax, financing, or investing purposes “Financial
Statement” of a company must include:
• Balance sheet as at the end of the financial year;
• Profit and loss account, or in the case of a company carrying on any activity not for profit, an
income and expenditure account for the financial year;
• Cash flow statement for the financial year;
• Statement of changes in equity, if applicable; and
• Explanatory note forming part of any document mentioned in above clauses.
As per Section 2(13) of Companies Act, "books of account" includes records maintained in
relation to:
• all sums of money received and expended by a company and matters in relation to which
the receipts and expenditure take place;
• all sales and purchases of goods and services by the company;
• the assets and liabilities of the company; and
 • the items of cost as may be prescribed under section 148 in the case of a company which
belongs to any class of companies specified under that section;
The term "book and paper" and "book or paper" include books of account, vouchers, deeds,
minutes, documents, writings, and registers maintained on paper or in electronic form. The Board
of Directors has to also prepare a Directors Report in the prescribed format and has to forward the
same to the shareholders along with audited accounts.
The aforesaid financial statements shall have to be placed before the Annual General Meeting
(AGM) of the Company and has to be adopted by the meeting.
Accounts to be maintained at registered office: The books of accounts including necessary paper
shall be maintained at the registered office of the company for every financial year. However, the
board of directors may keep the books of accounts at any other place in India after filing a notice
with the Registrar.
Maintenance of books of accounts at different Place: Board of directors can decide to keep the
books of accounts of the company at any place in India to keep its books of accounts. The Board
shall pass a resolution to give effect to such a decision and within 7 days file a notice with the
Registrar of Companies in Form AOC-5.
Books of Accounts in Electronic Form: Company can maintain its books of accounts and other
relevant papers in electronic if it satisfies all the following:
• The records maintain in electronic mode is accessible in India
• The records are retained completely in its original format and is unaltered
• The information received from branch office shall be kept unaltered and portray how it was
originally received from the branches
• The records maintained shall be in a readable form.
• A proper system for storage, retrieval, display or printout of the electronic records is in place
and such records shall not be disposed unless permitted by law
• The back-up of records shall be kept in servers physically located in India on a periodic basis.
• An intimation to the Registrar by the company shall be given on an annual basis at the time
of filing of financial statement regarding the name of the service provider, the internet
protocol address of service provider, the location of the service provider, address of records
maintained on cloud, wherever applicable.
Company Annual Filing: Every Company registered under Companies Act is required to file their
returns with the Registrar of Companies annually. Company Annual Filings refers to the filing of
Audited Annual Financial Accounts of the Company along with Directors Report and Annual Return
of Company with Registrar of Companies. These yearly filings are mandatory for every registered
Company whether the Company carries on business or not.
Financial Year of a Company: The financial year of a company shall be the period starting from 1st
April of a year to 31st day of March of following year. However, the financial year of company
incorporated on or after the 1st January of a year will be 31st day of March of the following year
where the accounts made up to that particular year since incorporation shall be taken into accounts.
For eg.
• A company registered on or before 31st December 2018 has to close its books on 31.03.2019
and has to file its Returns with Registrar of Companies and Income Tax for the year 2018-19.
 • A company registered on or after 1st January 2019 has to close its books on 31.03.2020 and
has to file its Returns with Registrar of Companies and Income Tax for the year 2019-20.
Different Financial Year than April - March: If the company is a holding or subsidiary or associate of
company incorporated outside India, the company can follow a different financial year for
consolidation of its accounts outside India after obtaining an approval from the Central
Government.
Accounts of Branch Office: Every company which has a branch office in India or outside India has to
keep at its office the proper books of accounts relating to the transactions effected at the branch.
Further, the branch office has to send the summarized returns periodically to its registered office or
such office where the books of accounts are maintained.
Inspection of Books of accounts: The Company has to keep ready all its books of account and other
books and papers open for inspection at the registered office of the company or at such other place
in India during business hours including financial information maintained outside India. Further, the
inspection of subsidiary of the company can be only done by a person authorized by the Board of
Directors through a resolution.
Preservation of Books of Accounts: The Company has to preserve its books of account of 8 financial
years immediately preceding a financial year and in case the company had been in existence for less
than 8 years, the records of all the preceding years shall be preserved. Penalty for Default: As per
Section 128 of the Companies Act, the officer who is in default shall be punishable with
imprisonment for a term which may extend to one year or with fine which shall not be less than
Rs.50, 000.00 but which may extend to Rs.5, 00,000 or with both. The officer who is in default means
the Managing Director, the whole-time director in charge of finance, the Chief Financial Officer or
any other person of a company charged by the Board with the duty of complying with the provisions
of this section, contravenes such provisions, such managing director, whole-time director in charge
of finance, Chief Financial officer or such other person of the company)
STATUTORY BOOKS
Statutory Register refers to specific records about a company’s shareholders, directors, and the
meetings held.
These records are in addition to the normal accounting records that companies are also meant to
keep. Most of the companies keep their statutory registers in a loose-leaf binder or bound book,
but they can keep it in any form like a computer record. The Companies Act, 2013 requires every
company to furnish these records before ROC (registrar of companies) within specific time limits
together with prescribed fees.
Statutory Books to be maintained by a Company
According to the Companies Act, a company has to maintain several types of Books and Registers.
Books are often classified as Statutory Books and Statistical Books. Statistical Books refer to Books
of Account and such other Record Books like an Inventory. Statutory Books are those which are
necessary to observe legal formalities of a company including Registers.
It is the duty of the Company Secretary to prepare and maintain the Statutory Books.
Generally the Statutory Books (including Registers) are: o Register of Members. o Index
of Members. o Register of Directors. o Register of Debenture-holders. o Register of
Mortgages and Charges. o Register of Directors’ Shareholdings. o Register of Contracts in
which Directors is interested.
o Minute Books:
o Of Directors’ Meetings; o Of Members’ Meetings; o Of Different
Committees’ Meetings, etc.,
o A File of Annual Returns. o Register of Fixed Deposits.
o Register of Company’s Investments in companies in the same group, etc.
Besides these, there shall be sets of Books of Account.
There are some other books which are maintained by big companies:
 Application and Allotment Book,
 Register of Transfers,
 Seal Book,
 Directors’ Attendance Book,
 Call Book,
 Agenda Book,
 Share Certificate Book,
 Dividend Book,
 Register of Share Warrants,
 Log Book, etc. Such Books are also known as Optional Books.