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What is Share Capital?


Posted Date: 17-Mar-2010  Last Updated:   Category: Share Market    
Author: Member Level: Gold    Points: 25


Meaning of Share Capital; Features of Shares Capital; Types of Share Capital; Share Capital



Meaning of Share Capital: Share capital denotes the amount of capital raised by the issue of shares, by a company. It is collected through the issue of shares and remains with the company till its liquidation.

Share capital is owned capital of the company, since it is the money of the shareholder and the shareholder are the owners of the company. The total share capital is divided into small parts and each part is called a share. Share is the smallest part of the total capital of a company.

Features of Share Capital:

  • Owned capital: Share capital is owned capital of the company. It is actually the money of the shareholders and since the shareholders are the owner of the company, so share capital is the owned capital.

  • Remains with the company: It remains with the company till its liquidation.

  • Dependable sources: Share capital is the most dependable source of finance for the joint stock companies.

  • Raises creditworthiness: It raised the credit worthiness of the company.

  • Substantial funds: It provides substantial funds to the company.

  • Available for: Share capital is easily available for expansion and diversification of business activities.

  • Amendment: The amount of share capital can be raised by amending the capital clause of the Memorandum of Association.

  • No charge: Share capital does not create any charge on the assets of the company.

  • Opportunity to participate: Share capital give its shareholders an opportunity to participate in the company's management with normal rights of shareholders.

  • Benefit of bonus shares: It gives it shareholders the benefit of bonus shares.

  • Benefit of limited liability: Share capital also gives its shareholders the befit of limited liability as the liability of its shareholders is limited up to the face value of each share.

  • Meaningful participation: Share capital enables its shareholders to have a meaningful participation in the expansion of corporate sector.


Types of Share Capital:

  • Authorized capital: It is the maximum amount of capital which a company can collect or raise by selling it's shares to the general public. Authorized capital is known as nominal capital or registered capital. For example: A company wants to sell 100 shares of Rs. 10/- each, so the total amount collected by the company is Rs. 1000/- i.e. 100 shares x 10 each = 1000

    The capital with which a company is registered is known as its authorized capital.

  • Issued capital: It is that part of the authorized capital which is actually issued to the general public. For example: A company has issued 80 shares of Rs. 10/- each so the issued capital is Rs. 800/-

  • Unissued capital: It is that part of the authorized capital which is not being issued to the general public.That is, company has not issued 20 shares of Rs. 10/- each, so the unissued capital is Rs. 200/-.

  • Subscribed capital: It is that part of the issued capital which is actually subscribed by the general public. That is company has issued 80 shares out of which 70 shares are being bought by the general public, so the subscribed capital is Rs. 700/-. That is 70 shares of Rs. 10/- each.

  • Unsubscribed capital: It is that part of the issued capital which is not subscribed by the general public. That is, if the the company has issued 80 shares out of which 70 are bought by the general public and 10 are not being bought by them, so the unsubscribed capital is 10 x Rs. 10 = Rs. 100. That is 10 shares of Rs. 10 each.

  • Called up capital: It is that part of the subscribed capital which is actually called up by the company. For instance, if a company has asked its shareholders to pay Rs. 5/- per share so on 70 shares, they have to pay 70 shares x Rs. 5 each = Rs. 350/-. This is the called up capital.

  • Uncalled up capital: It is that part of the subscribed capital which is not being called up by the company. It may be called up as and when the company need funds. That is out of Rs. 10/- per share, Rs. 5/- per share is being called up by the company and Rs. 2 is being uncalled up and Rs. 3 is kept as reserve, that is yet to be called.

  • Reserve capital: Reserve capital is that part of the uncalled capital which is reserved to be called up only at the time of winding up or liquidation of the company. It cannot be called during the life time of a company. It is to be used only for meeting extra- ordinary situation such as liquidation of the company. The purpose of reserve capital is to meet the interests of the creditors at the time of winding up of the company.

  • Paid up capital: It is that part of the called up capital which is actually paid up by the shareholders. For example, out of 70 shares which were subscribed for 60 shareholders have paid up their call money, that is 60 x Rs. 5 = Rs. 300/- is called as the paid up capital of the company.

  • Unpaid up capital: It is that part of the called up capital which is not being paid by the shareholders. For example: out of 70 shareholders, 60 shareholders have paid up their call money and 10 shareholders have not paid their call money, so 10 x Rs. 5 = Rs. 50/- is called as unpaid up capital.

    Unpaid up capital is also known as Calls in Arrears.

These were the meaning, features and types of share capital.

Thank you.
Related Resources:


Read related articles: Share Capital Types    Calls in arrears    

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Responses to "What is Share Capital?"
Author: Aparna     05 Apr 2010Member Level: Gold   Points : 2
hi
Thanks for such an excellent publication with in depth study regarding the concept of share capital in the case of Corporate sectors.
Basically you have discussed about Equity share capital and apart from this there are various types of Preference share capital also.Issue of right share to the existing holders also there.However every one should be able to understand about your simple but in depth representation.



Author: Mohamed Salim    05 Apr 2010Member Level: Gold   Points : 2
This an excellent and informative article.
Very useful for people who have interest
in share market.

Bonus Shares :There are bonus shares also.
This is issued to the current shareholders
based on the number of shares the shares holder own.



Author: Manoj Kumar Sahu    07 Apr 2010Member Level: Silver   Points : 2
This is a nice article on share capital. This is an academic article and nothing to do with share trading. The article describes meaning, features and types of share capital.

However, some members have misunderstood the topic and commented the article will help in solving problems of members who trade in shares.

These type of comments should be discouraged by the author himself as well as the editors.



Author: dolly    22 Dec 2013Member Level: Silver   Points : 8
This is a very nice article on share capital. Share capital is capital owned by company through issue of shares. Company can raise capital through shares in two ways:-
1. Preference Share Capital:- Preference share capital is capital owned by company by issuing preference shares. Preference shares are the shares which bear a fixed rate of dividend. Preference shares are paid by company whether dividend or any other amount before equity shares.

2. Equity Share capital:- Equity share capital is capital owned by company by issuing equity shares. Company is not required to repay it in life time of company. And dividend rate on it is also not fixed.

Here Call in arrears are explained. I want to add one more point:-
Call in advance:- Call in advance refers to the amount which is paid by shareholder in advance. For ex. if a amount called up by company is 6rs. per shares of 10rs. But one shareholder who have 100 shares pay whole amount 1000rs. Now the 40rs. paid by shareholder is call in advance.



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