Hello Bankers 👋! Welcome to this comprehensive guide on Company Accounts for JAIIB AFM 2025.
This topic is a key component of Module B – Company Accounts and is frequently asked in the exam. Understanding this chapter will not only help you in JAIIB AFM Paper but will also strengthen your foundation in corporate accounting and financial reporting.
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In this detailed session, we’ll cover everything — from the meaning and characteristics of a company to the classification of capital, MOA & AOA, and types of shares. Examples and comparison tables are also included to simplify the learning process.
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🏢 What is a Company?
A company is a legal association of persons who come together to carry out business activities for profit. It is an artificial legal person created under the Companies Act, 2013.
The shareholders provide capital, but the company exists as an independent entity — separate from its owners.
Example: HDFC Bank Ltd, Infosys Ltd, and LIC of India are examples of companies registered under the Companies Act.
✅ Key Features of a Company
- It is an incorporated association registered under law.
- Acts as an artificial legal person (exists legally, not physically).
- Has perpetual succession – it never dies; members may change, but the company continues.
- Has a common seal used for official documents.
- There is a clear separation between ownership and management.
- Limited liability – shareholders are liable only up to their shareholding.
🧱 Types of Companies
1️⃣ Based on Incorporation
- Chartered Company: Formed by a Royal Charter (e.g., East India Company).
- Statutory Company: Established under a special Act of Parliament (e.g., RBI, LIC).
- Registered Company: Incorporated under the Companies Act, 2013.
- Foreign Company: Incorporated outside India but operates within India.
2️⃣ Based on Ownership
| Type | Min Members | Max Members | IPO Allowed? |
|---|---|---|---|
| Private Company | 2 | 200 | ❌ No |
| Public Company | 7 | No Limit | ✅ Yes |
| Government Company | – | – | At least 51% Govt. ownership |
Directors’ Norms:
- Private Company – Minimum 2 Directors
- Public Company – Minimum 3 Directors (Max 15)
- Can be increased via special resolution
3️⃣ Based on Liability
- Company Limited by Shares: Liability limited to the unpaid value of shares held.
- Company Limited by Guarantee: Members guarantee a fixed sum in case of winding up.
- Unlimited Company: Members have unlimited liability (rare).
⚖️ Partnership vs Company
| Basis | Partnership Firm | Company |
|---|---|---|
| Formation | By agreement, registration optional | Mandatory registration under Companies Act |
| Members | Maximum 50 | Private: 200, Public: Unlimited |
| Liability | Unlimited | Limited to share capital |
| Regulation | Less regulated | Highly regulated by ROC and MCA |
💰 Structure of Share Capital
Every company issues shares to raise capital. The capital of a company is divided into different categories,
depending on its stage of issue and collection.
| Stage | Meaning | Example |
|---|---|---|
| Authorized Capital | Maximum capital mentioned in the MOA | ₹300 crore |
| Issued Capital | Part of authorized capital offered to the public | ₹80 crore IPO |
| Subscribed Capital | Portion actually subscribed by public | ₹75 crore |
| Called-up Capital | Amount demanded from shareholders | ₹50 per share |
| Paid-up Capital | Money actually received | ₹48 per share |
Note: Paid-up capital is always ≤ Issued Capital. It appears under “Shareholders’ Funds” in the balance sheet.
📈 Over-Subscription & Under-Subscription
- Over-subscription: When applications > shares issued. Shares allotted on a pro-rata basis.
- Under-subscription: When applications < shares issued. All applicants receive shares.
📜 Memorandum & Articles of Association
A company’s operations are governed by two key documents:
MOA (Memorandum of Association)
- Defines external scope and powers of the company.
- Contains clauses such as Name, Registered Office, Object, Liability, Capital, and Subscription.
AOA (Articles of Association)
- Regulates internal management and procedures.
- Specifies rights, duties, and powers of directors and members.
🧾 Types of Shares
Equity Shares 💹
Equity shareholders are the real owners of the company. They have voting rights and receive variable dividends depending on profit.
Preference Shares 💸
Preference shareholders enjoy priority in dividend payment and capital repayment during winding up.
Types of Preference Shares:
- Cumulative & Non-Cumulative
- Redeemable (within 20 years) & Non-Redeemable
- Participating & Non-Participating
- Convertible & Non-Convertible
🎁 Bonus & Non-Voting Shares
Companies often issue bonus shares as a reward to existing shareholders, converting reserves into share capital.
It does not involve any cash outflow.
Example: “For every 10 shares held, 1 bonus share is issued.”
Non-voting shares (up to 25% of paid-up capital) are issued to raise capital while retaining control.
However, voting shares cannot be converted into non-voting ones.
📚 Summary Table
| Concept | Key Point |
|---|---|
| Separate Legal Entity | Company acts independently of owners |
| Limited Liability | Loss limited to investment value |
| Authorized Capital | Maximum limit in MOA |
| Issued Capital | Offered to public for subscription |
| Paid-up Capital | Actual money received |
| Preference Shares | Fixed dividend with priority rights |
| Bonus Shares | Issued from reserves – no fresh inflow |
Understand Debt-Equity, DSCR & Interest Coverage with solved examples.
🏁 Conclusion
Company Accounts form the backbone of financial reporting and corporate balance sheet analysis. As a banker, understanding share capital structure, MOA/AOA, and equity vs preference shares is essential to evaluate corporate customers and their funding patterns.
Keep revising these concepts regularly and attempt the Practice MCQs available on
JAIIB Learning Sessions and IIBF.info App.
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