Share Capital of a Company

Share capital means the amount contributed by shareholders. As we know a company being an artificial person cannot generate own capital which has necessarily to be collected from several individuals. These Individuals/persons are known as shareholders of the company. It is impossible to open a separate capital account for each shareholder because they are very large in numbers. Hence, innumerable streams of capital contribution merge their identities in a common capital account which is called “Share Capital Account”.

Categories of Share Capital

Authorized Capital

Authorized capital is the amount that can be raised from the issue of shares to the public by company. Authorized capital is the limit to which the shares can be sold to the shareholders and not more than that. The amount of the authorized capital can be increase or decrease as per the procedure applicable in the Companies Act, 2013. Companies not need to issue the full amount of authorized capital for public subscription at one time, it can be issued according to requirement but it should not be more than the amount of authorized capital.

Example: A company has an authorized capital of Rs.30,00,000 then it can issue shares worth upto Rs.30,00,000 to the shareholders of the company and not more than this amount. If the company wants to issue shares worth Rs. 15,00,000 then the remaining capital amount can be used anytime in future and will be held as unused capital.

Issued Capital
It refers to the number of shares issued by the company to its shareholders. In other words issued capital is that part of authorized capital which is actually issued to the public for subscription. Depending on the need of funds, a company can sell all the shares or either a portion of it. Issued capital represents the shares that are issued to the shareholders and which are still unpaid.

Example: A company has an authorized capital of Rs.30,00,000, and the price of each share is Rs. 10. If the company receives an application for Rs.2,00,000 shares of Rs.10. But the issued only 1,50,000 shares of Rs.10 each, then the issued capital will be Rs. 15,00,000 (1,50,000 x 10).

Subscribed Capital

Actual subscribed part of issued capital is known as subscribed capital. When shares offered by a company to public for subscriptions and fully subscribed by the public the issued capital and subscribed capital would be the same. Ultimately, the subscribed and issued capital is the same because if the number of shares, subscribed is less than what is offered, the company allot only the number of shares for which subscription has been received. In case if subscription is higher than what is offered, the allotment will be provided only equal to the offer. In other words, when a company issue shares for public subscriptions is known as “issued capital” amount actually subscribed by the public is called “Subscribed Capital”

Example: A company has an authorized capital of Rs.25,00,000 which means issue of capital by company cannot be exceed Rs.25,00,000.

Called up Capital

It is a part of subscribed capital which has been called up on the shares. Companies do not ask the subscribers for full amount of shares to be paid at once. They demand partial payments during allotment of shares. The amount which has been demanded in partial payment is referred to Called up Capital.

Example: If the face value or nominal value of a share allotted is Rs.10 and the company has called up only Rs.7 per share, in that scenario the called up capital is Rs.7 per share. The remaining Rs.3 may be called up from shareholders as and when needed.

Paid up Capital

When a company sells its shares to the investors, paid up capital is the amount which is paid by investors/shareholders in exchange of shares to a company or paid up capital is a part of the called up capital which has been actually received from the shareholders of the company.

Example: A company has an authorized capital of Rs.10,00,000 converted into 1,00,000 shares of Rs.10 each. The company received applications for 80000 shares. But the company issued 1,00,000 shares for Rs.8 each share. All the calls have been met by the shareholders. Then the paid up capital will be 8,00,000 (1,00,000 X 8). The remaining capital of Rs.2,00,000 can be raised by the company anytime in future.

Calls in Arrears

When a company gives allotment of shares to its investors and received full payments for shares allotted to them. If any shareholder failed to pay the amount on calls, such amount may be called as “calls in arrears” Therefore, paid up capital is equal to the called up capital minus calls in arrears.

Uncalled Capital

It is that part of subscribed capital which has not yet been called up for payments. The company may need funds in the future so it can be collected the remaining amount at any time in future whenever needed.

Reserve Capital

The amount called up only in the event of winding up which a company may reserve is called reserve capital. It is available only for creditors of the company at the time of winding up.

Solved example of Categories of Share Capital

Question: The public subscribes for 5000 shares of a company of Rs. 100 each share. Company calls up Rs. 60 per share and receives the payment only for 4000 shares from its subscribers. Find out

  • Subscribed Capital
  • Called up Capital
  • Calls in Arrears
  • Paid up Capital

Solution
Subscribed Capital
Subscription received for 5000 shares at Rs.100 per share, the subscribed capital is 5000 x 100 = Rs. 50000

Called up Capital
Company called up Rs.60 per share, then the called up capital is 5000 x 60 = Rs.30000

Calls in Arrears
Payment received only from 4000 subscribers at Rs.60 per share. Calls in arrears are 5000-4000 = 1000 shares

Arrears = 1000 x 60 = 6000

Paid up Capital

Paid up Capital = Called up Capital – Calls in Arrears
30000-6000= Rs.24000