Share Capital of a Company
Share capital is funds raised by a corporation by distributing shares. Read this complete blog to learn more about share capital.
Izhar Ahmad18 Oct, 2023
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Share capital is funds raised by a corporation by distributing shares. Read this complete blog to learn more about it.
Depending on the context, the phrase "share capital" may signify a few distinct things. The term used by accountants is significantly more constrained, and it governs how public company balance sheets are interpreted. It refers to the total amount obtained by the firm from selling of shares. The share capital of a firm is stated in the shareholder's equity section of its balance sheet. The statistics might be provided under different line items depending on the funding source.Share Capital Definition
The money raised by a business to issue shares to the general public is referred to by the term of share capital. Share capital is, to put it simply, the cash that shareholders invest in a company. It is a reliable source of long-term capital that supports efficient operations, financial growth, and profitability. Capital primarily refers to the resources utilized to operate a firm. Alternatively, it may be the funding needed to start a business. The proportion of capital or interest held by a corporation is referred to as its shareholder's under the Indian Companies Act.Classification of Share Capital
The share capital of a company can be classified into two main categories: Equity Share Capital and Preference Share Capital.Equity Share Capital:
- Consists only of equity shares, no preference shares.
- Offers the potential for maximum benefits and losses.
- Shareholders benefit when the company's shares perform well on the Stock Exchange.
- Benefits include extra dividends and higher resale values of shares.
- However, equity shareholders bear the burden of losses if the company loses money.
- In such cases, they may need to sell their shares at below-par values.
- Equity shareholders have the right to vote at the company's Annual General Meetings (AGMs).
Preference Share Capital:
- Comprises only preference shares.
- Holders of preference shares receive preferential treatment.
- Dividends are paid to preference shareholders before equity shareholders.
- Specific advantages are outlined in Section 43(b) of the Companies Act (2013).
- If the company faces losses and cannot issue dividends, preference shareholders also receive no extra bonuses.
- In the event of the company winding up, preference shareholders have the right to receive their share of the company's capital.
Representation of Share Capital in Balance Sheet
In a company's Balance Sheet, the different types of share capital are delineated. Here is an excerpt from the Balance Sheet of XYZ Ltd as of 31st December. Liabilities Shareholder's Funds: Share Capital Reserve and Surplus Money received against shares Notes as per Schedule VI – Share Capital: Authorized Capital: XX equity shares of Rs. (x) each XX preference shares of Rs. (x) each Issued Capital: XX equity shares of Rs. (x) each XX preference shares of Rs. (x) each Subscribe Capital: XX equity shares of Rs. (x) each XX preference shares of Rs. (x) each Called-up Capital: XX equity shares of Rs. (x) each XX preference shares of Rs. (x) each Paid-up Share Capital: XX equity shares of Rs. (x) each XX preference shares of Rs. (x) each Adjustments: Less: Calls in Arrears Add: Forfeited sharesForms of Share Capital
Authorized Capital:
Authorized capital signifies the maximum amount a company is permitted to issue, as outlined in its Memorandum of Association. This limit, set within the bounds of the Memorandum of Association, serves as a cap, preventing the company from exceeding its specified share capital. The authorized capital, also known as registered capital, can be adjusted, either increased or decreased, following the regulations stipulated in the Companies Act.Issued Capital:
Issued capital constitutes the portion of the authorized capital made available for public subscription. This includes shares allotted to company memorandum signatories and vendors. Any authorized capital not offered for public subscription is categorized as unissued capital, which can be made available to the public at a later date.Subscribed Capital:
Subscribed capital represents the segment of issued capital that the public has actually subscribed to. The issued capital and subscribed capital align when the shares offered for public subscription are fully subscribed by the public.Called-up Capital:
Called-up capital refers to the part of the subscribed capital for which the company has requested shareholders to make payments. The company can opt for full payment or partial payment of the shares' face value, as required.Paid-up Capital:
Paid-up capital denotes the portion of the called-up capital that shareholders have duly paid. Called-up capital and paid-up capital are equal when shareholders have fulfilled their payment obligations. Failure to meet these obligations results in "calls in arrears."Uncalled Capital:
Uncalled capital signifies the portion of subscribed capital that the company has not yet called upon. The company retains the authority to collect this amount when the need for funds arises.Reserve Capital:
Reserve capital constitutes a portion of uncalled capital that a company may set aside as a reserve. This reserve is accessed only in the event of the company's liquidation. Creditors are entitled to this reserve if the company undergoes winding up procedures.Share Capital FAQs
What is an example of shareholder's capital?
An example of shareholder's capital is when a company raises funds by issuing shares of stock to investors.
How do you calculate shareholder's capital?
Shareholder's is calculated by multiplying the number of shares issued by their face value.
What is the difference between share capital and share?
Share capital refers to the total value of shares a company is authorized to issue, while a share represents ownership in a company.
What are the 4 types of shares?
The four types of shares are common shares, preferred shares, cumulative preferred shares, and non-cumulative preferred shares.
What is the meaning of 1 crore for 5 equity?
1 crore for 5 equity means that 1 crore rupees are invested in a company in exchange for 5 equity shares.
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