What is Share Capital of a Company
The capital of a company is described in a number of ways, if we look at from the legal and accounting point of view, the capital of the company is classified on the basis of the amount stated in the capital clauses of the memorandum of association. The capital is fixed after making a careful analysis of the present and future requirements of the company. The capital of the company is generally divided into the following types.
Types of Share Capital:
The following types of share capital are discussed below in details ;
Authorized or registered capital.
This is the maximum amount of the capital which a company can issue. It is called authorized capital because the company has an authority to issue this much capital. It is also called registered capital because the maximum amount limits of the capital to be issued are fixed at the time of registration of the company.
- The authorized share capital of the company is mentioned in the capital clause of its memorandum of association.
- While deciding about the authorized capital, the present and future needs of the company are careful worked out.
- If in any stage company wants to issue more capital than authorized it will have to alter capital clause in its memorandum of association. The alteration of capital clause involves a lot of formalities.
- The authorized capital is divided into numbers of shares.
- It may write as ‘the authorized capital of the company will be Rs.1000000 divided into 100,000 shares of Rs.10 each’.
- The authorized capital is also called nominal capital or registered capital.
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Issued and unissued share Capital:
A company issues shares according to the requirements. It may not require the entire capital at one time. The capital is issued along with its development stage. Issued capital is that part of authorized capital which is actually offered to the public for subscription in the form of shares.the balance of authorized capital remaining to be issued is called unissued capital.
Example: if the authorized capital of a company is Rs.10, 00,000 and the company issues shares valuing Rs. 800,000 then unissued capital will be Rs. 200,000
The amount of issued capital only indicates the amount open for public subscription. Subscribed capital denotes the share capital taken up by the public. It is that part of issued capital for which application for subscription has been received from the public.
Example: A company issues 300,000 ordinary shares of Rs. 10 each , if all the shares are subscribed for by the public, then the issued and subscribed capital , are the same. It is Rs. 30,00,000 . in case the subscribed capital is for 200,000 shares out of 300,000 , the issued capital is 30,00,000 and the subscribed capital is 20,00,000 and unsubscribed capital is 10,00,000
The application for shares may be more or less than the number of shares offered by the company. If the number of applications is more than the shares offered to the public by the company. It is known as oversubscription, in case the applications are less than the issued capital, it is called under subscription.
Paid up Capital:
The paid up capital is the amount of capital which has been paid up by the shareholder on an application of each share.
A public company may create a special category of capital know as Reserve Capital in respected of the uncalled capital of the company. Reserve capital is the amount which is no callable by the company except in the case of a company being wound up. Reserve capital is created by means of a special resolution passed by the company in its general meeting by ¾ majorities of those voting on it.
Called up capital :
a company may not be in need of the entire amount of the capital subscribed to by the public. The amount due on the shares subscribed and allotted may be collected from the respective shareholders in instruments at different intervals.
The amount of the shares which is actually demanded by the company to be paid is known as called up capital.
Example: out of 300,000 shares of Rs. 10 each subscribed, the company may call rs.3 per share on an application. Rs.2 per share on allotment and Rs. 1 on the first call. Thus Rs6(3+2+1) per share which amounts to rs.180,000 is the called up capital of the company and the balance or Rs. 120,000 would be uncalled capital.