Nature And Types of Share Capital

Share capital refers to the entire amount of money raised by a company issuing shares. To continue expanding their business, all organisations require a consistent influx of finance. Keep in mind that a corporation is a legal entity with a legal personality. People who willingly contribute money to an entity’s owned corpus become co-owners of that entity. Each organisation’s entire capital is its share capital, and its donors are its shareholders.

Share capital and its forms were restricted and easy to get when modern corporate structures emerged. Shareholders easily became co-owners of the company in which they had purchased shares. The number and types of share capital rose as firms grew. Individual shareholders walked away from company ownership since it entails accepting responsibility, sharing day-to-day operations, and passing on losses experienced. The extra pressure eventually caused them to buckle.

Nature of Share Capital

In a joint business, the terms capital and share capital are interchangeable. The capital generated through the issuance of shares is called share capital. In a nutshell, the share capital account is a single consolidated capital account. Limited-by-guarantee and unlimited-by-guarantee firms do not require share capital. 

(I) Authorised or nominal or registered capital, (ii) Issued capital, (iii) Subscribed capital, (iv) Called up capital, (v) Paid-up capital, (vi) Uncalled capital, (vii) Reserve capital are all terms that relate to capital.

Different Types of Share Capital

Authorised Share Capital

The consolidated capital that a company accepts from its investors listed in the company’s official documentation is referred to as authorised share capital. This capital is also known as Registered Capital or Nominal Capital because it is used to register a corporation. The Capital Clause sets the ceiling of Authorised Capital in the Memorandum of Association. The firm has the authority to take the necessary actions to expand the authorised capital limit to issue more shares. Still, it is not entitled to issue shares that exceed the limit of authorised capital in any case.

Issued Share Capital

The portion of Authorised Share Capital issued to the public for subscription is known as Issued Share Capital. Issuance, allocation, or allotment are the terms used to describe the act of giving shares. 

Subscribed Capital

The portion of issued capital that has been sold to the public is known as subscribed capital. It is not fully subscribed by the general public. It is the portion of the issued capital for which the corporation has received an application. For example, If a corporation gives 16000 shares of one hundred rupees each and the public only applies for 12000, the issued capital is 16 lakh INR, and the subscribed capital is 12 lakh INR. The total number of outstanding and treasury shares equals the number of issued shares.

Called-Up Capital

Capital is the portion of the Subscribed Capital that contains the shareholder’s payment. The capital is not given to the company in its whole at once. It uses a part of the subscribed capital when required in instalments. Uncalled capital refers to the remainder of the Subscribed Capital.

Paid-Up Capital

One of the types of share capital is paid-up capital, which is the portion of Called-up Capital that the shareholder pays. The shareholder does not have to pay the sum requested by the corporation. As the name implies, a reserve is a sum of money held in the company’s treasury. This comes in handy if the company needs to be wound up.

Uncalled Share Capital

The amount that the corporation has not yet claimed on the number of designated shares and which the shareholders have to pay as and when needed. As a result, the uncalled capital in the above example is 2,00,000 INR.

Capital Reserve

The portion of the subscribed capital that has not been called up, and the company has determined it can only be called up in the event of and for the company’s winding up by special resolution, is known as Capital Reserve.

Conclusion

Companies issue shares to raise funds by diluting the original shareholders’ ownership interest. The price of a stock may fluctuate from time to time. As a result, it is essential to invest in the stock market. Furthermore, many people are perplexed by the distinction between shares and shared capital. A corporation’s share capital is the money raised through the sale of equity to investors, whereas a shareholder’s share is the percentage of the money paid to the company.