What do you mean by Share Capital of a company?

What do you mean by Share Capital of a company? Into how many classes it can be divided?

Ans.

SHARE CAPITAL

Share capital is the sum total of moneys raised by a company from private or public sources through issue of shares. Such capital is usually divided into certain units of fixed amount called shares. The persons who hold such shares are called shareholders. Thus, the moneys received by a company through sale of shares are called share capital, in aggregate.

KINDS OF SHARE CAPITAL

According to Section 43 of the Companies Act, 2013 there are two types of share capital:

(i) Equity Share Capital: “Equity share capital” is one which is not preference share capital. In other words, such share capital does not carry any preferential rights as carried by the preference share capital, which have been described hereunder. In fact, equity shareholders are the real owners of a company. They are paid dividend after the preference shareholders. Similarly, at the time of winding-up of a company, they get back their capital after the payment of capital to the preference shareholders. Thus, for the purpose of payment of dividend and repayment of capital at the time of winding-up, the equity shareholders rank after the preference shareholders.

(ii) Preference Share Capital: Preference share capital means that part of the issued share capital which carries preferential rights with respect to the following two matters:

(a) Payment of dividend, either as a fixed amount or an amount calculated at a fixed rate, which may either be free of or subject to income-tax, and

(b) Repayment, in case of a winding-up or repayment of capital, of the amount of the share capital paid-up or deemed to have been paid-up.

Thus, preferential shareholders receive their dividend and repayment of capital prior to the equity shareholders.

CLASSIFICATION OF CAPITAL FOR THE PURPOSES OF ACCOUNTING

Following are the various types of capital of a company :

(1) Authorized or Nominal or Registered Capital: In case of a Company limited by shares or a company limited by guarantee and having a Share Capital, the amount of the Share Capital with which the company is registered is called the authorized or nominal capital and it is always stated in the Memorandum of Association of the Company. In other words, it the maximum amount of capital authorized by Memorandum of Association.

(2) Issued Capital: That portion of the Authorized Capital which is issued by the company from time to time for subscription to the public is called Issued Capital.

(3) Unissued Capital: That portion of the Authorized Capital which is not issued for subscription is called Unissued Capital.

(4) Subscribed Capital: That portion of the Issued Capital which is taken up by the public is called Subscribed Capital. This capital may be more, less or equal to issued capital. If it is more than issued capital, the excess is returned back to the subscribers. Directors can allot shares only upto the extent of Issued Capital.

(5) Called up Capital: Full amount of share is not generally called at one time, but for the sake of convenience and according to the need of the company it is called in instalments. That portion of the Subscribed Capital which is called for payment is known as Called up Capital.

(6) Uncalled up Capital: That portion of the Issued Capital which is not called up is known as Uncalled up Capital.

(7) Paid-up Capital: That portion of the called up capital which is paid by the subscribers to the company is known as TPaid-up Capital.