Share capital is required by every company, whether it is a private limited company or a public limited company. Additionally, “Share Capital” refers to the amount contributed by the company’s members to carry out its operations. A company can also alter, modify, increase, or reduce its share capital, subject to certain conditions. In addition, there are different types of share capital in a company, each with its own rights.
Concept of Share
According to the Companies Act 2013, section 2 (84) defines the term “share.” This section defines Share as a part of a company’s share capital, which includes stock as well. The share is just a part of the securities.
Concept of Share Capital
A company is an artificial person with its own legal existence. To carry out its operations, it needs funds. As the name implies, “Share Capital” refers to the amount contributed by the members of the company through the issuance of shares.
Furthermore, whenever people contribute voluntarily to a company, they automatically become owners or members of that company. As a result, the amount raised by the company is called Share Capital, and the people contributing are called Shareholders.
Furthermore, both “Share Capital” and “Capital” are synonymous in the context of companies.
The different types of share capital
As Share capital can be classified as follows under the Companies Act 2013:
“Authorised Share Capital” refers to the amount of capital stated in the Memorandum of Association. In other words, it is the amount that can be raised by issuing shares. Additionally, a company must pay stamp duty on this amount.
Authorised Capital is also known as Nominal Capital and Registered Capital. Section 2 (8) of the Companies Act 2013 defines “Nominal Capital” as the amount of capital mentioned in the Memorandum of Association of the company.
A company’s Authorised Capital can also be calculated by taking into account its Reserve Capital and Working Capital requirements.
Authorised Capital Calculation Formula
Authorised Capital = Issued Share Capital + Unissued Share Capital.
The term “Issued Capital” refers to the portion of Authorised Capital that is offered to the public as a subscription by the company. The process of allotment of shares is included. The term “issued capital” is further defined in section 2 (50) of the Companies Act 2013.
In accordance with Schedule III of the Act, every company is required to disclose the amount of Issued Capital in its Balance Sheet.
Calculating Issued Capital Formula
Issued Capital = Subscribed Capital + Unsubscribed Capital.
According to section 2 (86) of the Companies Act 2013, “Subscribed Capital” refers to a company’s capital that has been successfully subscribed by its members. Therefore, it is the total number of shares held by the public.
However, if a company mentions its Authorised Capital through any form of communication, such as an advertisement, notice, official letter, or business letter, etc., it must also mention its paid up and subscribed capital in equal conspicuous terms.
Called up Capital
As The term “Called up Capital” refers to the part of the company’s capital that is available for payment, according to section 2 (15) of the Companies Act 2013. In other words, it is the total amount that a company calls up on its shares.
A “Paid-Up Capital” is the amount of capital actually credited or paid by the shareholders on the shares. As a result, it is the amount of capital the company receives from its shareholders in exchange for its stock or shares.
Paid-up Capital Calculation Formula
Paid up Capital = Called up Capital – Calls in Arrear
A term called “Uncalled Capital” is just the opposite of one called “Called up Capital”. Basically, it refers to the share capital that shareholders have not yet paid.
Reserve Capital refers to the uncalled capital that a company owns but can only use when it dissolves.
To put it simply, every business entity needs funds to operate. Internally or externally, it can raise the same amount. In addition, Share Capital refers to the amount contributed by the members of the company in the form of shares. According to the Companies Act 2013, there are seven different types of share capital.