Tuesday, 21 June 2011

What Is Share Capital?

What Is Share Capital?

In Companies, the words ‘Capital’ and ‘Share Capital’ are used interchangeably. The raising of capital by issuing the shares is known as Share Capital. Share Capital is a permanent liability of a company. Memorandum of Association must contain all the features of a company’s share capital i.e. amount, its division into shares etc.

Types of Share Capital:-

1. Nominal, Authorised or Registered Capital:- It is the registered capital of a company. It is the amount which the company is authorised to issue. Any company whether public or private cannot issue shares more than the amount of its authorized capital. This amount is stated in Memorandum of Association. E.g. if the amount of capital mentioned in Memorandum of Association is 10,00,000, then this will be the Nominal, Authorised or Registered Capital of the company.

2. Issued Capital:- Issued Capital is a part of Nominal or Authorised Capital, which has been issued by the company for public subscription. A company cannot issue all of its authorised capital at once. It can never be more than Nominal Capital. And the Un-issued Capital is the difference between the authorised and issued capital. e.g. if the company has issued shares of Rs.5,00,000 out of the nominal capital of Rs.10,00,000, then Rs.5,00,000 will be the issued capital of the company.

3. Subscribed Capital:- It is that part of Nominal Capital which has been actually subscribed by general public for cash or in kind. If the whole issued capital has been subscribed by the public, then issued capital becomes the subscribed capital. e.g. suppose if the issued capital is Rs.5,00,000 and the applications were received for only 4,00,000 shares, then Rs.4,00,000 would be the Subscribed Capital of the company.

4. Called Up Capital:- The amount of subscribed capital, which the company has asked its members to pay, is known as Called Up Capital. e.g. if the face value of each share is Rs.10 and the company has demanded only Rs.5 from its shareholders then out of the total subscribed capital of Rs.4,00,000, Rs.2,00,000 will be the Called up capital.

5. Paid-Up Capital:- The part of Called Up Capital which has been paid by the shareholders to the company is known as Paid-Up Capital and the remaining part of the Called-Up Capital is known as Unpaid Capital. e.g. suppose out of called up capital of Rs.5 per share, only Rs.3 per share has been paid by the shareholders, then the Paid up Capital of the company will be Rs.1,20,000.

6. Uncalled Capital:- The amount on shares which has not been called by the company from its shareholders to pay is known as Uncalled Capital. The company may call upon its members to pay the uncalled amount on shares. e.g. the remaining Rs.5 which has not been called by the company is known as Uncalled capital.

7. Reserve Capital:- A company may by special resolution convert the uncalled capital into reserve capital. Reserve Capital is that part of uncalled capital which can be called upon by the company only in the event of Winding up.

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