Share Capital and Nature of share capital

The term capital is referred as the amount needed by a business to start its operation. In the case of company capital is denoted as the amount of money raised by issue of shares. Being an artificial person company cannot generate money at the beginning on their own, so in order to collect the money they raise it from different people.

CLASSIFICATION OF SHARE CAPITAL

Authorised / Nominal/ Registered capital

Authorised capital is the maximum amount that a company is entitled to issue as per its memorandum of articles. This amount to the maximum money that a company is authorised to raise by issuing of shares and upon which it pays stamp duty and registration fee. Either the full amount or part can be raised by the company when needed. The authorised capital also known as Registered capital can be increased or decreased as doing alteration in the capital clause of MOA, following the provision of company’s law.

Issued capital

Issued capital is referred to such part of Registered capital that is offered to the public for subscription is called Issued capital. It is important to understand that it is on the discretion or need of the company to whether issues the complete nominal capital or part of it for subscription. The issued capital for subscription cannot be more than the nominal capital.

Subscribed capital

It is referred to that part of Issued capital that has been actually subscribed by the public.

Called-up capital

Companies generally do not call the full amount of share at once. It is referred to the part of Subscribed capital which a company has asked its subscribers to pay. The company can ask to pay in full or just a part of the face value of the shares.

Paid-up Capital

This is the amount that has actually been paid-up by the shareholders or which is credited as paid-up on the shares Called up capital and paid-up capital will be equal when all the shareholders have paid the call amount. Often, some shareholders fail to pay the calls made on them and the amount thus owing is known as calls in arrears or unpaid capital.

Reserved Capital

It is portion of uncalled capital which a company can keep in reserve, to be used in the case of winding up of a company. The creditor has access to such capital in case of winding up. Such uncalled capital is known as reserve capital.