TYPES OF SHARE CAPITAL

Authorized Share Capital

Authorized Share Capital is the total Capital that a company accepts from its investors by issuing shares that are mentioned in the official document of the company. It is also called Registered Capital or Nominal Capital because with this Capital a company is registered.

According to Section 2(8) of the Companies Act, 2013, the limit of Authorised Capital is given under the Capital Clause in the Memorandum of Association. The company has the discretion to take the required steps necessary to increase the limit of authorized capital with the purpose of issuing more shares, but the company is not allowed to issue shares that are exceeding the limit of authorized capital in any case.

Authorized Share = Issued Share + Unissued Share.

Issued Share Capital

Issued Share Capital is the part of Authorized Share Capital issued to the public for subscription. And this Act of issuing Shares is called Issuance, allocation, or allotment. In a simple way, you can say that Issued Share Capital is the subset of the Authorized Share Capital. After the allotment of shares, a subscriber becomes the shareholder.

Issued Capital = Subscribed + Unsubscribed Capital

Subscribed Capital

Subscribed Capital is the part of issued Capital that has been taken off by the public. It is not mandatory that the issued Capital is fully subscribed to by the public. It is that part of the issued Capital for which the application has been received by the company. Let’s understand this with an example – If a company offers 16000 shares of Rs. One hundred each and the public applies only for 12000 shares, then the issued Capital would be Rs 16 lakh, and Subscribed Capital would be Rs 12 lakh. Issued Share is equal to the sum total of share outstanding and treasury shares.

NOTE: Once the Share has been issued and purchased by investors, these shares are called Shares Outstanding. This issuing of shares gives the shareholders ownership of the corporation. The Unsubscribed Share Capital can be called the Treasury Shares.

Called-Up Capital

Called-up Capital is the part of the Subscribed Capital, which includes the amount paid by the shareholder. The company does not receive the entire amount of Capital at once. It calls upon the part of subscribed Capital when needed in installments. The remaining part of the Subscribed Capital is called Uncalled Capital.

Paid-Up Capital

The part of Called-up Capital that is paid by the shareholder is called Paid-up Capital. It is not mandatory that the amount called by the company is paid by the shareholder. The shareholder may pay half the amount of the called up Capital, which is called Reserved Capital.  As the name reserve means to keep some amount in the treasury of the company. This is quite useful in the case of winding- up the company.

The Companies Amendment Act 2015, has amended that minimum requirement of the paid-up capital is not required in the Company. That signifies that at present the formation of the Company can be done with even Rs.1000 as the company’s paid-up capital. The paid-up capital shall always be less than or can be equal to the authorized share capital at any point in time and the Company is not allowed to issue shares beyond the company’s authorized share capital.

What is the difference between Capital Reserves and Reserve Capital?

There is a clear difference between Capital Reserve and Reserve Capital. Capital Reserve is the part of profit reserved by the company for a particular business purpose or to finance long-term projects. Whereas, the Reserve Capital is the part of the Authorized Capital that has not yet been called up by the company and is available for drawing anytime when necessary.