Share Capital: Meaning, Types and Example

An organization’s share capital (or capital stock in US English) is the portion of a company’s equity that’s been accessed by the issue of shares in the corporation to a customer, usually for cash. In a strict accounting sense, share capital is the minimal value of issued stocks (in other words, the sum of the par values, as indicated on share certificates). If the allocation cost of stocks is higher than their par value, e.g. as in a rights issue, the stocks are believed to be sold at a premium (variously referred to as share premium, additional paid-in capital or paid-in capital in excess of par). Generally, the share capital is the amount of the above nominal share capital and also the superior share capital. Conversely, when shares are issued below par, they are reportedly issued at a discount or part-paid.

Share Capital

Sometimes stocks are allocated in trade for non-cash consideration, most often when company A acquires company B for shares. Here the share capital is increased to the level value of the new shares, and the merger reserve is raised to the balance of the price of company B.

Apart from its significance in bookkeeping, described above, “share capital” can also describe the amount and kinds of stocks that compose a organization’s share structure. For an example of the various meanings: a company may have an “outstanding share capital” of 500,000 shares (the “structure” use); it has obtained for them a total of two million bucks, which at the balance sheet is your “share capital” (the accounting use). The legal aspects of share funds are largely managed in a jurisdiction’s corporate regulation system. A good example of such an issue is that if a business allocates new shares, it must do so in a way that does not inequitably dilute current shareholders without their agreement.

Meaning Of Share Capital

A joint stock company should have capital to be able to finance its activities. It increases its capital by issue of shares. The Memorandum of Association must state the amount of capital with which the company is needed to be registered and the amount of shares into which it is to be split. When total capital of a company is divided into shares, then it is known as share capital. It represents the basis of the capital structure of an organization. In other words, the capital collected by a joint stock company for its business operation is called share capital. Share capital is the total quantity of funds collected from its shareholders for attaining the common goal of the business as stated in Memorandum of Association.

Types Of Share Capital

Share capital of a company can be divided into the following different categories:

1. Authorized, registered, maximum or normal capital
The maximum amount of capital, which a company is authorized to raise from the public by the issue of shares, is known as authorized capital. It is a capital with which a company is registered, therefore it is also known as registered capital.

2.Issued Capital
Generally, a company does not issue its authorized capital to the public for subscription, but issues a part of it. So, issued capital is a part of authorized capital, which is offered to the public for subscription, including shares offered to the vendor for consideration other than cash. The part of authorized capital not offered for subscription to the public is known as ‘un-issued capital’. Such capital can be offered to the public at a later date.

3.Subscribed Capital
It can not be said that the entire issued capital will be taken up or subscribed by the public. It may be subscribed in full or in part. The part of issued capital, which is subscribed by the public, is known as subscribed ccapital

4.Called Up Capital
It is that part of subscribed capital, which is called by the company to pay on shares allotted. It is not necessary for the company to call for the entire amount on shares subscribed for by shareholders. The amount, which is not called on subscribed shares, is called uncalled capital.

5. Paid-up Capital
It is that part of called up capital, which actually paid by the shareholders. Therefore it is known as real capital of the company. Whenever a particular amount is called and a shareholder fails to pay the amount fully or partially, it is known an unpaid calls or calls in arrears.
Paid-up Capital = Called up capital – calls in arrears

6. Reserve Capital
It is that part of uncalled capital which has been reserved by the company by passing a special resolution to be called only in the event of its liquidation. This capital can not be called up during the existence of the company.It would be available only in the event of liquidation as an additional security to the creditors of the company