Share capital is the money a company grows by issuing general or preferred stock. The amount of share capital of a company can change over time with an additional public expiation. In simple words share capital means the capital raised company by the issue of shares.
The promoters of a company make an estimate of the maximum capital requirement for commencing the business of a company. The maximum amount of capital is mentioned in the clause of the memorandum of association of the company is to situate.
As the total capital of the company is divided into shares, the capital of the company is termed as share capital as per the Companies Act 2013 has not defined the term share capital.
Different Types Of Shares Capital:
There are two types of share capital :
A) Equity Share Capital
B) Preference Share Capital
A) Equity Share Capital: Equity share capital are those share capital which is not a preference share capital.
I) With voting rights or
II) With differential rights as to dividend
B) Preference Share Capital: According to section 43(b) (II) of the companies Act 2013, Preference share capital is that part of share capital which carries preferential right with respect to:
I) Payment of dividend either as a fixed amount or at a fixed rate
II) Repayment, in the case of winding up or repayment of capital, of the amount of the share capital paid up or deemed to have been paid up.
Sub-division of Share Capital:
They are explained below:
A) Authorized Capital:
The authorized capital is the capital with which a company is registered and this amount is mentioned in the capital clause of the Memorandum of Association.
Therefore, the amount of capital that is mentioned in the memorandum of the company is the authorized capital.
Authorized share capital is the maximum amount of share capital for which the company is authorized to issue during its lifetime.
For example, A Ltd is registered with a capital of Rs 5 lakhs divided into shares of Rs. 10 each. Here the authorized capital of the company is Rs. 5 lakhs.
A company cannot issue shares more than the authorized or nominal capital.
B) Issued Capital:
Issued capital is that portion of authorized capital for which offers have been invited for a subscription.
In other words, it is the nominal value of shares that have been offered for public subscription. This includes any share or shares issued for consideration other than cash.
For example B ltd. invited applications for the issue of 40000 shares of Rs. 10 each, the issued capital will be Rs. 40000.
The issued capital of the company can never exceed the authorized capital. the portion of authorized share capital for which offers have not to be more than the issued capital.
C) Subscribed capital:
Subscribed capital represents that part of the issued capital which has actually been subscribed and allotted to the public.
For Example: Out of the above 40,000 shares of Rs. 10 each, 38,000 shares are applied for and allotted by the company, the subscribed capital will be Rs. 38000.
Again, if the whole of the 40,000 shares is applied for and allotted by the company, the subscribed capital will be Rs. 40,000.
It must be noted that the subscribed capital can be equal to or less than the issued capital but it cannot be more than the issued capital.
D) Called-up Capital:
Called-up capital is that part of the subscribed capital for which the company actually demanded from the shareholders.
The amount of subscribed capital and called up capital may change in case the amount due on a share is collected in instalments and all the instalments have not been demanded by the company.
For example: Where on a share having a face value of Rs. 10, Rs. 7 has been called on 40,000 shares, the called up capital shall be Rs. 280,000 and if the whole has been called, the called-up capital would be Rs. 4,00,000.
The called-up capital of the company cannot exceed the subscribed capital. The portion of the capital which has not been called is known an uncalled capital.
Where the shares are issued at a premium, the security premium money does not form part of share capital.
E) Paid-up capital:
Paid-up capital is that portion of the called-up share capital which has been paid by the shareholders.
As some of the shareholders may fail to pay the amount due from them on account of a call, the paid-up capital may be either equal to or less than the called-up capital.
The amount of call money which has been paid by the shareholders is termed as calls-in-arrears.
F) Reserve capital:
Reserve capital is that part of subscribed capital which has not been called-up, and the company has, by special resolution, resolved that it can be called up only in the event of the winding-up of the company.
Hence, such a portion of the capital cannot be called except in the case of winding-up. The aim of reserve capital is to protect the interest of the creditors of the company.
Other terms associated with share capital are:
1. Calls in arrears: Calls in arrear is the amount which has been called for by the company but has not paid by the shareholders.
In other words, it is the amount remaining unpaid on allotted shares, although it has been called up.
2. Calls in Advance: Sometimes some shareholders may pay a part or whole of the amount due on share before the amount is called-up. such amount paid in advance against call is known as calls in advance.