# Audit of Share Capital
## 1. General Share Capital Verification
- Tally the opening balance with prior year figures; trace all movements during the year.
- No change in SC: Obtain Written Confirmation from the Company Secretary (CS).
- Change in SC: Verify paid-up capital does not exceed authorised limit; check MOA/AOA accordingly.
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## 2. Fresh Issue of Shares — Compliance Checklist
For every fresh issue, the auditor checks compliance with the Companies Act and applicable regulations:
| Item | What to Check |
|---|---|
| Return of Allotment | Filed with MCA |
| Minimum Subscription | Received before allotment |
| Underwriting Commission | Paid within prescribed limits |
| Consideration other than cash | Properly valued and disclosed |
| Discount | Not issued at discount (check exceptions) |
| Stamp Duty | Correctly calculated and paid to MCA |
| SEBI Regulations | Complied with (for listed companies) |
| Form FCGPR | Filed with RBI for FDI by NRI |
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## 3. Issue at Premium — Section 52, Companies Act 2013
Securities Premium Account (SPA) can only be applied for these five purposes:
1. Writing off preliminary expenses
2. Writing off expenses, commission, or discount on issue of shares/debentures
3. Issue of fully paid Bonus Shares
4. Premium payable on redemption of Redeemable Preference Shares or Debentures
5. Buy-back of own securities (Sec 68)
Auditor verifies:
- Premium received is credited to Securities Premium A/c ✓
- Application of SPA is only for the above five permitted purposes ✓
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## 4. Issue at Discount — Section 53, Companies Act 2013
Issue of shares at discount is void (strictly prohibited).
Valid Exceptions:
1. Sweat Equity Shares (Sec 54)
2. Shares issued at discount to creditors when debt is converted into equity under a statutory resolution plan or debt restructuring scheme.
Penalty for violation:
- Fine: ₹5,00,000 on company and officers
- Refund all money raised + 12% p.a. interest from the date of issue of shares
Auditor Procedures:
- Verify no shares were issued at discount during the year.
- Read minutes of board/general meetings authorising issue.
- Where debt is converted at discount → verify compliance with RBI guidelines/directions.
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## 5. Sweat Equity Shares — Section 54, Companies Act 2013
Equity shares issued to employees or directors at a discount or for non-cash consideration, for providing know-how or intellectual property / value additions.
Conditions the auditor must verify:
| Condition | Detail |
|---|---|
| Authority | Authorised by Special Resolution |
| Resolution content | Specifies: number of shares, CMP, consideration, class of directors/employees |
| Class of shares | Same class as existing equity shares |
| Listed company | Must comply with SEBI regulations |
| Unlisted company | Must comply with prescribed rules |
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## 6. Reduction of Capital — Section 66, Companies Act 2013
Auditor Procedures:
- Verify AOA authorises reduction of capital.
- Verify MOA is suitably altered.
- Confirm Special Resolution (3/4 majority) was passed — proposal circulated in advance.
- Vouch Registrar's Certificate regarding reduction of capital.
- Check accounting entries and revaluation of assets is properly disclosed.
- Examine Order of Tribunal confirming the reduction.
- Verify all conditions imposed by Tribunal have been complied with.