Concepts and types of share capital

Money required by a company to commence and carry on its operations is raised by issuing shares and debentures. Although there are other sources of raising funds (like acceptance of public deposits, taking bank loans, etc.), issue of shares is the bulk of fund requirement by a company. The term ‘Share Capital of a company’ can be used in the following concepts:–

• Authorised Capital: This presents the value of shares with which a company is registered.
• Issued Capital: This means the portion of authorised capital that is being offered for public subscription.
• Subscribed Capital: This presents that portion of issued Capital that is being taken up by public.
• Called up Capital: This represents that part of subscribed capital that the directors have decided to call up from the subscriber to satisfy the monetary needs of the company.
• Paid up Capital: That portion of called up capital that is being actually paid in cash by the shareholders.

Types of Shares

A company can issue two types of shares:–

• Preference shares:

  Preference shares carry a fixed rate of dividend which is to be paid before distribution of Equity Dividend. At the time of winding up of the company the claim of preference shares towards repayment of capital has to be satisfied before satisfying claim of Equity Shareholders. Preference share holders can neither get the Notice of A.G.M nor are they able to take part in deliberation of the meeting except when their dividend has remained unpaid for a specified number of years. Preference shares can be cumulative or noncumulative.

• Equity shares:

  Equity shares are those which are not preference shares. They do not carry any specific rate of dividend; i.e. the rate of dividend can vary over the years depending on the sufficiency of profit. They are allowed to get notice and attend the A.G.M. of the company.