Share Capital

Share capital refers to the amount of money a company raises by issuing preferred or equity stocks to the public. However, its precise meaning depends on the context in which it is used.

For an accountant, share capital simply represents the funds obtained through the sale of company shares. The size of a company's share capital fluctuates based on additional public offerings.

Importantly, only companies limited by shares possess share capital. In contrast, unlimited companies and companies limited by guarantee do not have such a capital structure.

A company that issues shares in exchange for capital is classified as a joint-stock company. This type of company may function as a separate legal entity for its members or as a corporation. Meanwhile, a company that limits investors' financial risk by capping their investment amount is categorized as a limited liability company (LLC).

Types of Share Capital

Share capital is categorized based on how shares are issued, subscribed, and utilized. The main types are as follows:

1. Authorized, Nominal, or Registered Capital

This is the maximum capital a company is permitted to raise, as stated in its Memorandum of Association.

 

It represents the total amount the company can collect from public subscriptions.

The company can increase or decrease this amount by following the prescribed legal process.

2. Issued Capital

Issued capital is the portion of authorized capital that the company offers to the public in the form of shares.

A company may not issue its entire authorized capital at once.

It must always be within the authorized capital limit.

It includes shares allotted to the public, vendors, and signatories of the Memorandum of Association.

3. Unissued Capital

Unissued capital refers to the portion of authorized capital that has not yet been issued.

It is calculated as:

Unissued Capital = Authorized Capital - Issued Capital

4. Subscribed Capital

Subscribed capital is the portion of issued capital that investors have agreed to purchase.

 

If all issued shares are fully subscribed, then issued capital = subscribed capital.

However, subscribed capital can never exceed issued capital.

5. Called-up Capital

Called-up capital is the portion of subscribed capital that the company has requested shareholders to pay.

Companies often collect payments in stages instead of demanding the full share price upfront.

For instance, if a company issues 20,000 shares at ₹100 each but requests only ₹60 per share initially, the called-up capital = ₹1,200,000 (20,000 × ₹60).

6. Uncalled-up Capital

Uncalled-up capital is the portion of subscribed capital that the company has yet to demand from shareholders.

It represents a potential liability for shareholders.

In the example above, the uncalled capital would be ₹800,000 (20,000 × ₹40).

7. Paid-up Capital

Paid-up capital is the portion of called-up capital that shareholders have actually paid.

 

To determine paid-up capital, any unpaid amount must be subtracted from called-up capital.

Paid-up capital = Called-up capital - Outstanding calls.

8. Fixed Capital

Fixed capital consists of long-term assets used in business operations, such as:

 

Land

Buildings

Machinery

Equipment

9. Reserve Capital

Reserve capital is a portion of subscribed capital set aside for use only in case of winding up or liquidation.

A company must pass a special resolution (¾ majority) to designate reserve capital.

It cannot be pledged as security for loans or converted into ordinary capital without court approval.

10. Circulating Capitaal refers to the working capital of a company, consisting of assets used in daily operations, such as:

 l

Circulating capit

Cash and bank balances

Bills receivable

Outstanding payments from customers (book debts)