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Posted on November 13, 2021
Share Capital of Company – Types, Procedure
A company’s share capital is the money it raises from selling common or preferred stock. Authorized share capital is the maximum amount a company has been approved to raise in a public offering. A company may opt for a new offer of stock in order to increase the share capital on its balance sheet.
Formula 1: Share capital equals the issue price per share times the number of outstanding shares.
Formula 2: Share capital equals the number of shares times the par value of stock plus the paid in capital in excess of par value.
Share capital consists of all funds raised by a company in exchange for shares of either common or preferred shares of stock. It does not include shares being sold in a secondary market after they’ve been issued. A company’s share capital is the money it raises from selling common or preferred stock. Authorized share capital is the maximum amount a company has been approved to raise in a public offering. A company may opt for a new offer of stock in order to increase the share capital on its balance sheet.
- Share Capital means the amount invested by the owners of the company for working operations of the organization.
- Shareholders are considered as the owners of the Company, also known as members of the company.
- As there are more than one shareholder / owners in a company, the total capital of the company is divided in in to small units called ‘Share’ for ease of distribution and identification.
- Shares held by the shareholder entitle different rights in the company.
- Shareholders have to pay money to company as investment to get the shares of the company.
- Shares are classified in to different classes depends on the rights and preferences attached to it.
Shares are mainly divided into
- Equity and
- Preference Capital.
These types of capital differ on their right to vote on certain corporate matters.
Share Capital of the company can be called with different Terms
- Authorised Share Capital
- Issued Share Capital
- Subscribed Share Capital
- Called up Share Capital
- Paid up Share Capital
Authorised Capital of Company
The Authorised Capital is the maximum amount a company can raise from its shareholders as Share Capital.
This amount will be mentioned in the Capital Clause of Memorandum of Association (MOA) of the Company.
In case the company is required to raise more capital, the company can increase the authorised capital by altering its MOA with the approval of its members.
Company Registration fee payable to the Registrar of Companies and the stamp duty is dependent on Authorised Capital the company.
Every time the company increases its Authorised Capital the incremental / additional registration fee and Stamp duty are payable to the office of Registrar of Companies.
Authorised Capital can be classified in to different classes of shares with face value not less than Rs.1.00.
PROCEDURE OF INCREASE IN AUTHORISED CAPITAL:-
1. Authorisation must in the Article of Association(AOA):-
It is mandatory to check whether the company AOA contains provision for increase in authorise capital then only company can increase its authorise capital.
2.Calling of Board Meeting of Board of Directors (BOD):-
Increase in Authorised Capital of the company subject to the approval of shareholders.
Approve and issue notice of EGM along with agenda & explanatory statement to all members, directors & auditor of the company.
3.Holding of Extraordinary General Meeting (EGM) and pass resolution
4.Alteration in Memorandum of Association(MOA):-
Alter the clause of authorise capital in the MOA of the Company.
ROC COMPLIANCE WITH REGARD TO THIS:
A limited company shall file form SH-7 with the Registrar of Company within the period of period of 30 days of such alteration along with the following attachment:-
Copy of Board Resolution
Copy of EGM Ordinary Resolution
Copy of Notice of EGM along with Explanatory Statement
Copy of altered MOA
Issued Capital of Company
Company can allocate a portion of its authorized capital for investors and shareholder and collect capital investment by way of issue of shares.
It is not necessary to issue full amount of authorized capital at a time.
It is issued by the company initially during incorporation and occasionally by way of allotment of shares for subscription.
The issued share capital has to be always within the amount of authorized capital as mentioned in the memorandum.
Shares can be issued at face value (par value) or at a Premium.
Also, the company has to issue Share Certificates to the shareholders with in 60 days of share issue.
Subscribed Capital of Company
The total amount of capital that the investors / shareholders pay for the shares is called as subscribed capital of company.
The subscribed capital shall be always equal or less than the issued capital of the company.
Sometimes in case of oversubscribed shares are allocated on prorata basis
Incase of undersubscribed shares , underwriters may be appointed to resolve the issue.
Called-Up Capital of Company
The company can collect the subscribed capital in instalments from shareholders.
Called-up capital refers to the particular amount of capital which has been called for payment.
The company issuing the shares may call-up the capital partly or fully. If the shares are partly called, the remaining part is considered to be yet to be called and hence named as partly paid-up share capital.
Once the shareholder pays the remaining amount of share capital, it is considered to be fully-paid up.
Paid-up Capital of Company
The paid-up capital refers to any amount of money which has been paid-up with respect to the shares which are being called by the company.
Paid-up capital can never be more than the authorized capital of the company.