Unlike a Sole Proprietorship or a Partnership firm, a Company raises its capital by the issue of shares to the public at large. This offer or invitation to the public by the company is called Initial Public Offer (IPO). Shares of a company can be issued either:
a) For Cash,
b) For Consideration Other than Cash
When the company receives cash against the issue of shares, it is called issue of shares for cash. However sometimes a company may purchase assets and the payment can be made by issuing shares to the vendors. Assets in this can be any asset like plant and machinery, land and building or any other asset or sometimes the whole business.Some times shares are also issued to the promoters, brokers, underwriters etc. for their services. This issue of shares against the purchase of assets or services is called Issue of Shares for Consideration Other than Cash.
The accounting treatment in both the cases is different and is being discussed in detail under respective sections.
Further, under both the above case Shares can again be issued on either of the following terms:
a) at par
b) at premium
c) at a discount
Shares are said to be issued at Par when the issue price of the shares is equal to its face value (nominal value) eg. shares of the nominal value Rs. 100 issued to the public at Rs. 100 is a case of issue of shares for cash.
Shares are said to be issued at a premium if the Issue price of the shares is more than their nominal value. eg. if the shares of the nominal value Rs. 100 issued to the public at Rs.120.
Shares are said to be issued at a Discount if the issue price of the shares is less than the nominal value. eg. share of the nominal value Rs. 100 issued to the public at Rs.80 is an example of shares issued at a discount.