After reading this article you will learn about:- 1. Meaning of Share Capital 2. Types/Nature of Share Capital 3. Classes.
Meaning of Share Capital:
The term capital usually means a particular amount of money with which a business is started. In Indian Companies Act, it has been used in different senses in various parts of the Act, but in general it means the money subscribed pursuant to Memorandum of Association of the Company. Capital, in fact, represents the assets with which the undertaking is carried on.
The sum total of nominal value of shares of a company is known as its share capital. In case of companies, the terms ‘capital’ and ‘share capital’ have been held to be synonymous. Capital to be stated in the Memorandum of Association and Articles of Association of the Company.
Types/Nature of Share Capital:
The share capital of company may be of the following types:
1. Registered, Authorised or Nominal Capital:
The Memorandum of Association of every company has to specify the amount of capital with which it wants to be registered. The capital so stated is called Registered, Authorized or Nominal Capital. The Registered Capital is the maximum amount of share capital which a company can raise by way of public subscription.
2. Issued Capital:
The company may not issue the entire authorised capital at once. It goes on raising the capital as and when the need for additional fund is felt. So, issued capital is that part of Authorised/Registered or Nominal Capital which is offered to the public for subscription in the form of shares.
3. Unissued Capital:
The balance of nominal capital remaining to be issued is called Unissued Capital.
4. Subscribed Capital:
It is that part of “issued capital” for which applications are received from the public. The subscribed capital is allotted to the respective subscribers as per resolution passed by the directors of the company.
5. Called up Capital:
It is that part of subscribed capital which has been called up by the company. A company does not call at once the full amount on each of the shares it has allotted and therefore, calls up only such amount as it needs.
6. Uncalled up Capital:
It is the uncalled portion of the allotted capital and represents contingent liability of the shareholders on the shares.
7. Paid up Capital:
It is that part of called up capital against which payment has been received from the members on their respective shares in response to the calls made by the company.
8. Reserve Capital or Reserve Liability:
By Reserve Capital we mean that amount which is not callable by the company except in the event of the company being wound up. The company cannot demand the payment of money on the shares to that extent during its life time. Reserve capital may be created by means of a special resolution passed by the company in its General Meeting by three-fourths majority of those voting on it.
When once the Reserve Capital has been so created the company cannot alter its Articles of Association so as to make the reserve liability available at any time. The Reserve Capital cannot be charged as security for loans by the directors. It cannot be turned into ordinary capital without the order of the court. It cannot be cancelled at the time of reduction of capital.
9. Fixed Capital:
The fixed capital of a company is what the company retains in the shape of fixed assets such as land and buildings, plant and machinery, furniture, etc.
10. Circulating Capital:
The circulating capital is a part of subscribed capital which is circulated in business in the form of using goods or other assets such as book debts, bill receivables, cash, bank balance, etc.
Classes of Share Capital:
The share capital of a company limited by shares may be of the following two kinds:
1. Preference share capital, and
2. Equity share capital.
1. Preference Share Capital:
It means that part of the capital of the company which:
(a) Carries a preferential right as to payment of dividend at fixed rate during the life time of the company.
(b) Carries, on the winding up of the company, a preferential right to be repaid the amount of the capital paid up.
2. Equity Share Capital:
It means with reference to a company, limited by shares, all share capital which is not preference share capital.