Share Capital

MEANING OF SHARES: In case of sole proprietorship and partnership there is limit of

capital investment in business since in sole proprietor there is only one owner and in

case of partnership, there also number of owners are limited. So where there is more

capital required or nature of project is very big and that requires huge capital, those

requirement demands companies form of organization in which capital is big and

number of owners are not limited. According to section 2(84) of the companies act

2013, share means a share in the share capital of a company and includes stock.

SHARE CAPITAL:-Total share capital of company is divided into number of small

indivisible units of a fixed amount and each unit is called share.The fixed value of share

printed on the share certificates called Nominal/ Par/ Face value of share. However

company can issue share at a price different from face value of share i.e. at discount or

premium. E.g. Share having face value Rs 100 can be issued at Rs 50/- premium on one

share, so here issue price is Rs 150.The liability of holder of shares (called shareholders)

is limited to issue price of share acquired by them. According to SEBI guidelines, a

company is free to price its issue if it has three years track record of consistent

profitability and in case of New Company, if it has been promoted by company with a

five years tracks record of consistent profitability. Since total capital of company is

divided into shares, the capital of the company is called share capital. Document used to

invite offer from public to subscribe share and debenture of company is called


Share capital of company divided into following categories:-

1. Authorized share capital (section 2(8) :-This capital also called Registered Capital or

Nominal Capital. This is maximum capital requirement of company and mentioned in

‘capital clause’ of the ‘Memorandum of Association’ registered with Registrar of

Company. This is maximum limit which a company can raise by issue of share capital

during its life time.It is shown on liabilities side of Balance Sheet at Face Value.

2. Issued Share Capital(section 2(50) :- It is that part of Authorized Capital which

company uses to raise fund since it is not necessary that all Authorized Capital should be

issued.The remaining portion of the authorized capital which is not issued is called un-

issued capital. It is not shown in Balance Sheet.

3. Subscribed Share Capital (section 2(86) :-That part of issued share capital which has

been subscribed by the public is called subscribed share capital. Subscribed share capital

may be more, less or equal to issued share capital. At least 90% of the issued share

capital must be subscribed by the public before the allotment of shares.

4. Called-up Share Capital (section 2(15) :-Companies generally receive the issue price

of share in installments. Called-up Capital is that portion of issue price of share which a

company has demanded and called from shareholder.The portion of issue price which is

not called or demanded by company is termed as uncalled capital.

5. Paid-up Share Capital (section 2(64) :-Paid-up capital is that portion of Called-up

Capital which is paid by shareholder. The portion of called up capital which is not paid

by shareholders are called unpaid calls or Installment in Arrears or Calls in Arrears. To

calculate paid-up share capital, Calls in Arrear is deducted from Called- up Capital in the

balance sheet. Called-up Capital and Paid-up capital are shown together at liabilities side

of balance sheet. Dividend are paid on Paid -up Capital

6. Reserve Share capital :- According to section 65 of Company Act 2013, a company

may decide by passing special resolution that some portion of subscribed uncalled

capital shall not be called up except in the event of

winding- up of Company. Portion of uncalled capital which a company has decided to

call only in case of liquidation of company is called Reserve Liability / Reserve Capital.

7. Capital Reserves:- Capital Reserves are created out of Capital Profits. These are not

free for distribution as dividend. This Reserve can be used to write off capital losses such

as discount on issue of shares, underwriting commission etc. This Reserve can also be

used to issue Bonus Shares if they have been realized in cash. Capital reserves are part

of Reserves and surplus and shown under the head ‘Reserves and surplus’ in the balance


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