NCERT Class 12 Accountancy Accountancy Part-II: Chapter 1 — Accounting for Share Capital
This chapter introduces the concept of a company as a form of business organization, tracing its evolution and highlighting its unique characteristics. It explains that a company is an artificial legal person, distinct from its shareholders, with capital contributed by many individuals. The chapter details the key features of a company, including its status as a 'Body Corporate' formed under law, its 'Separate Legal Entity' separate from its members, and the 'Limited Liability' of its shareholders. It also covers 'Perpetual Succession', ensuring the company's continuous existence regardless of member changes, the use of a 'Common Seal' for official signatures, the 'Transferability of Shares' in public companies, and the company's ability to 'Sue or be Sued'. The chapter begins the classification of companies based on member liability, focusing on 'Companies Limited by Shares'. This foundational chapter is crucial for understanding corporate accounting principles in Class 12 Accountancy for CBSE.
Quick info
| Board | CBSE / NCERT |
|---|---|
| Class | Class 12 |
| Subject | Accountancy |
| Book | Accountancy Part-II |
| Chapter | Chapter 1 — Accounting for Share Capital |
| Language | English |
| PDF type | NCERT Textbook |
| Session | CBSE 2026 |
| Reading time | 5 minutes |
| Word count | 856 |
Learning outcomes
- Explain the basic nature of a joint stock company.
- Describe the types of shares issued by a company.
- Explain the accounting treatment of shares issued at par, premium, and discount.
- Outline the accounting for forfeiture and reissue of shares.
- Prepare a share forfeited account.
Vocabulary
| Word | Meaning |
|---|---|
| Shareholders | Persons who own shares in a company and are its real owners. |
| Board of Directors | Elected representatives of shareholders who manage the company's affairs. |
| Artificial Person | A legal entity created by law, distinct from natural persons. |
| Share Capital | Capital raised by a company in the form of shares. |
| Debt Capital | Capital raised by a company through borrowing, such as debentures. |
| Body Corporate | A company formed and registered under the provisions of law. |
| Separate Legal Entity | A legal status distinct and separate from its members. |
| Limited Liability | The liability of members is restricted to the unpaid amount on their shares. |
| Perpetual Succession | Continuous existence of the company, unaffected by changes in membership. |
| Common Seal | An official signature of the company, used for binding documents. |
| Transferability of Shares | The ability to freely transfer ownership of shares, especially in public companies. |
| Sue or be Sued | The legal capacity of a company to initiate or be the subject of lawsuits. |
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Practice questions
- What is a company according to Chief Justice Marshal? Answer: A company is an artificial, invisible, intangible person existing only in the eyes of law, possessing only those properties conferred by its charter of creation.
- What does 'Limited Liability' mean for the members of a company? Answer: It means the liability of the members is limited to the unpaid amount of the shares they hold.
- How does a company ensure its continuity despite changes in its ownership? Answer: Through perpetual succession, the company continues to exist irrespective of the death, insanity, or insolvency of its members.
- What is the function of a company's common seal? Answer: The common seal acts as the official signature of the company, making documents binding on it.
- Are the shares of a private limited company freely transferable? Answer: No, the shares of a private limited company are not freely transferable; restrictions may apply as per its Articles.
Practice MCQs
Q1. A company is considered a person in the eyes of law, which is:
Explanation: According to Chief Justice Marshal, a company is an artificial, invisible, and intangible person created by law.
Q2. The capital contributed by shareholders is known as:
Explanation: Shareholders contribute capital in the form of shares, which is referred to as share capital.
Q3. Which feature ensures a company's existence continues regardless of its members' changes?
Explanation: Perpetual succession means the company's existence is continuous and unaffected by the life or status of its members.
Q4. The liability of members in a company limited by shares is limited to:
Explanation: In companies limited by shares, members are only liable up to the nominal value of the shares they hold, specifically the unpaid portion.
Q5. What acts as the official signature for a company?
Explanation: The common seal is used as the official signature of the company for executing documents and making them binding.
Q6. Which of the following is NOT a feature of a company?
Explanation: Companies typically have limited liability for their members, not unlimited liability.
Frequently asked questions
What is the primary difference between a company and other forms of business organization?
A company is an artificial legal person with a separate legal entity, limited liability, and perpetual succession, unlike sole proprietorships or partnerships.
Who are the owners of a company?
The shareholders are the real owners of the company, as they contribute the capital by purchasing shares.
How is a company managed?
Shareholders elect a Board of Directors who manage the day-to-day affairs of the company.
What does it mean for a company to have a 'Separate Legal Entity'?
It means the company is legally distinct from its owners (shareholders) and can own property, enter contracts, and sue or be sued in its own name.
What is the significance of the 'Common Seal' for a company?
The common seal serves as the official signature of the company, making documents bearing it legally binding.
Can a company cease to exist if its members change?
No, due to perpetual succession, a company continues to exist regardless of changes in its membership, such as death or insolvency of members.
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NCERT Class 12 Accountancy — Accountancy Part-II — Chapter 1 — Accounting for Share Capital. Verified by NCERT Help Editorial Team. Reviewed on 29 Jul 2026. Last updated 10 Aug 2026.