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This article is about What Is Share Capital ? Classification Of Share Capital And Share Capital Types Of Company With Share Capital Example –
It is a major part in the capital structure of a company, it is a long term and owned source of capital. It is a part of total finance raised by the company from its owners, in exchange for shares on which dividend is paid to them out of profits of the said company.
Share capital of a company can be classified into 5 ways –
1 : Authorized Capital / Registered capital / Nominal capital –
It is the capital which company is authorized to raise / issue as per its memorandum of assassination. It is the maximum amount up to which company is authorized to issue shares to the public without altering the M.O.A. Beyond this limit company can not raise more capital, unless the M.O.A. Is amended. Such a maximum amount of capital that, the company can raise during its lifetime, requires to be registered with the registrar of companies, so it is also called as a Registered Capital. The authorized Capital is not included in the total of balance sheet. But it requires to be disclosed in the balance sheet for the purpose of public information. It is not the actual capital raised by the company and so it is also called as a Nominal Capital.
Share capital example –
RM & Co. Ltd. Registered with an authorized Capital of rs 5,00,000 divided into 5,000 equity shares of Rs.100 each.
2 : Issuded Capital :
In the initial stages, the company not requires its full amount of authorized capital to be raised. By considering the actual requirement of capital in the initial period, the directors issues part of authorized capital to the public for subscription.
The nominal value of the shares, which are offered to the public for subscription, is called issued capital. It is a part of authorized capital, which is issued to the public.
Share capital example –
Out of 5000 euuity shares , RM & CO. Ltd. issued 3000 equity shares to the public. Therefore the issued capital of that company will be ( ( 3000 ✖️ Rs 100 ) = Rs 3,00,000.
3 : Subscribed Capital :
It is a part of the issued capital, which is actually subscribed / purchases by the public. If the public subscribes all the shares offered by the company, in such case the subscribed capital will be equal to issued capital. It is the nominal value of shares actually sold.
Share capital example –
Out of 3,000 shares issued by RM & CO. Ltd. suppose the public applied for 2,800 shares . In this case the subscribed capital of RM & CO.Ltd. Is ( 2,800 ✖️ Rs 200 ) = 2,80,000.
4 : Called Up Capital :
It is part of the subscribed capital, which has been called up by the company according to its financial needs. In general, the board of directors not calls the full amount of face value of shares. It calls the amount into different small installments, as per requirements, over a period of time .
Share capital example –
Consider the above example, Out of Rs 100 face value of a share, suppose that RM & CO. Ltd. has called only Rs 80. The balance amount of Rs. 20 being final call is not yet made. In this case the called up capital of RM & CO. Ltd. is ( 2,800 shares ✖️ Rs 80 ) = Rs 2,24,000.
5 : Paid Up Capital :
It is a part of called up capital, which has been actually paid up by the shareholders. We know some shareholders fail to pay the amount of calls made by company. In such a case due to the uncollected amount ( called as calls in arrears ), the directors cannot collect the full amount of called up capital. Therefore the actual which the company has collected from its shareholders out of called up capital, is called as paid up capital.
Share capital example –
Consider the above example. Suppose one of the shareholder holding 100 shares could not pay Rs.30 per share on his shares. It means that, there are calls -in-arrears ( 100 ✖️Rs.30 ) = Rs.3000 in this case, the paid up capital of RM& CO. Ltd. after deducting the calls-in-arrears will be: Rs. 2.21,000.
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