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Meaning And Types Of Share Capital

Meaning Of Share Capital
A joint stock company should have capital in order to finance its activities. It raises its capital by issue of shares. The Memorandum of Association must state the amount of capital with which the company is desired to be registered and the number of shares into which it is to be divided. When total capital of a company is divided into shares, then it is called share capital. It constitutes the basis of the capital structure of a company. In other words, the capital collected by a joint stock company for its business operation is known as share capital. Share capital is the total amount of capital collected from its shareholders for achieving the common goal of the company 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 capital

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

5 comments:

Marilyn Adams said...

Thank you so much for letting us know this meaning and types of share capital. I got an information because this post is very understanding. I will show this blog to my friends. So keep updating on us. Thank you!

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Angelica Quiambao said...

is the subscribed capital share part of the outstanding shares capital?

if you could answer immediately i would really appreciate it...
thank you

Margaret Njoki said...

Thank you. I have now understood what a share capital is. Keep it up!!

karthick karthicks said...

clearly i have understood what a share capital

Shekhar said...

Capitals are very well explained above. I am giving below a link of www.jbsclasses.com where this is explained with the help of an example:
http://www.jbsclasses.com/q2a_link/index.php?qa=433&qa_1=accounting-for-share-capital&show=434#a434

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