Introduction
Share capital represents the funds raised by a company through issuing shares to its members, forming a key part of the company’s structure. Under the Companies Act, 2013, Section 43, share capital is defined as the aggregate of the nominal value of shares issued by a company. Broadly, share capital is classified into Authorized Share Capital, which is the maximum capital a company can issue as stated in its Memorandum of Association (MoA), and the portion of authorized capital actually offered to shareholders. This classification ensures transparency in corporate finance and regulatory control, making it essential for proper business planning.
Types of Issued
Issued share capital is further divided into Subscribed Share Capital—the portion investors have agreed to take—and Paid-up Share Capital, representing the actual amount received from shareholders. Share capital can also be Equity Share Capital, offering voting rights and dividends, and Preference Share Capital, providing preferential rights to dividends or repayment, as explained under Sections 43 and 55 of the Companies Act, 2013. Understanding these distinctions is crucial for legal compliance and effective financial management.
Additional Classifications
Share capital may also be Called-up Capital, the amount requested from shareholders, and Uncalled Capital, the portion not yet demanded. Other types include Forfeited Capital, arising when shareholders fail to pay, and Redeemable vs Irredeemable Capital, depending on repayment terms. Each type has specific rights, obligations, and risks, helping companies structure their finances while adhering to legal requirements.
Real-time Example
Consider a startup, TechNova Pvt. Ltd., with an authorized of ₹50 lakh. They issue ₹30 lakh as issued capital, of which ₹20 lakh is subscribed and fully paid up. Equity shares provide voting rights, while preference shares guarantee fixed dividends. Later, the company may call up the remaining ₹10 lakh, illustrating called-up and uncalled capital in practice. This example shows how legal provisions on influence real-world business financing decisions.
Mnemonic to Remember
“All Intelligent People Prefer Careful Calculations” — Authorized, Issued, Paid-up, Preference, Called-up, Capital. This mnemonic helps recall all key types of quickly and efficiently.
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