SHARE CAPITAL AND ITS CATEGORIES

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 prospectus.

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 sheet.

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