Share capital means that issued a share of ownership of the business to someone against a fixed amount. You will go to learn the meaning, types, and classes of share capital in this article.
What is Share Capital?
In accounting, capital means anything brought by the owner into the business in cash or in-kind(any item) in all types of business. In the Indian Companies Act 2013, The term capital is repeated many times in the act and it is used in a different sense in various parts of the Act, but in general, it means the money subscribed pursuant to the Memorandum of Association of the Company.
When the amount of total capital is divided into the numbers of shares then it will be known as share capital. So, If the business type is Company then Shares Capital means getting investment for business from a Natural or artificial person by issuing shares of ownership. Shares are measured in units.
In simple words, that capital shared with other persons is known as shares capital.
Types of Share Capital:
It can be divided into the following types on the basis of nature.
Authorized, Registered, or Nominal Capital:
Authorised, Registered or Nominal Capital Is that for which the company is authorised for the maximum amount of capital by the memorandum of association of a company to issue its capital.
It is stated separately for each class or kind of capital i.e. maximum limit for Preference shares and the maximum limit for Equity shares to issue its share capital.
“authorised capital or nominal capital means such capital as is authorised by the memorandum of a company to be the maximum amount of share capital of the company;”
– Section 2 subsection 8 for the Indian Companies Act, 2013
Issued Capital means that part of the authorised shares capital is already issued to someone or to the public in the share market for subscription.
“issued capital means such capital as the company issues from time to time for subscription;”
– Section 2 subsection 50 for the Indian Companies Act, 2013
Unissued Capital means that part of the authorised shares capital which is not issued yet for the subscription.
“subscribed capital means such part of the capital which is for the time being subscribed by the members of a company;”
– Section 2 subsection 86 for the Indian Companies Act, 2013
Unsubscribed capital means such part of the issued capital which is not subscribed by the public.
“called-up capital means such part of the capital, which has been called for payment;”
– Section 2 subsection 15 for the Indian Companies Act, 2013
Uncalled-up capital means such part of the subscribed capital, which has not been called yet for payment.
“paid-up shares capital or share capital paid-up means the such aggregate amount of money credited as paid-up as is equivalent to the amount received as paid-up in respect of shares issued and also includes any amount credited as paid-up in respect of shares of the company, but does not include any other amount received in respect of such shares, by whatever name called;”
– Section 2 subsection 64 for the Indian Companies Act, 2013
Classes of Share Capital:
Section 43 of the Indian Companies Act, 2013 prescribes that the Share Capital of a company broadly can be of two classes or kinds: –
Equity Share Capital:
The shares capital which are carrying voting rights, rights to dividends, and ownership known as Equity shares. The Equity share has all rights on the balance of profit after payment of interest and preference dividend. The dividend of the equity shareholders is paid after the payment of dividends to Preference shares.
“(a) equity share capital—
(i) with voting rights; or
(ii) with differential rights as to dividend, voting, or otherwise in accordance with such rules as may be prescribed;”
– Section 43 subsection (a) for the Indian Companies Act, 2013
Preference Share Capital:
The shares of ownership which are carrying some preferences are known as preferences. The preferences are mainly of a fixed rate of dividend, fixed repayment date, and after a fixed time convertible to equity shares. The dividend of the preference shareholders is paid before the dividend on equity shares.
“(b) preference share capital:
Provided that nothing contained in this Act shall affect the rights of the preference shareholders who are entitled to participate in the proceeds of winding up before the commencement of this Act.”
– Section 43 subsection (b) for the Indian Companies Act, 2013
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