As compared to Sole Properitorship and Partnership forms of business, a Joint Stock Company needs a huge capital to invest in its business because of its huge scale of operations. Hence to make it easier to attract investors to come and invest in the company, the capital of the Company is divided into a number of units of smaller denomination called shares. For example, if the total capital of a company is $10,000,000 divided into 1,000,000 units of $10 each, then each unit of $10 is called a share. Shares of a company are moveble property and can be transferred from one person to another in the manner provided by the Article of Association of the company. These can be bought and sold in the stock market. Any person holding the shares of the company becomes its shareholder. The shareholders are the owners of the company to the extent of the value of the shares held by them. Being the owner of the company they get a share in the profits of the company in the form of dividend.
Types of Share Capital
Share capital of a company can be divided into following categories:
1. Authorised or Registered Share Capital
It is the maximum amount of capital that a company is authorised to issue. This is also called the registered capital of the company since the company is registered with this capital. For example .. A company ABC Ltd is registered with a maximum capital of $10,000,000 then this amount is called the authorised or maximum capital of the company.
2. Issued Share Capital
Issued capital is that part of the authorised capital which is offered to the public for subscription. Generally only a part of the authorised capital is issued and the remaining part is kept to be issued on a later date as and when need arises. Issued Capital includes shares issued to the vendor for consideration other than cash. For example.. ABC Ltd is registered with a capital of $10,000,000 divided into 1,000,000 shares of $10 each. On 1st March 2010 it decided to issue 100,000 shares to the public. In this case the issued capital of the company is $1,000,000.
3. Subscribed Capital
Generally whenever a company invites public to invest in its shares its very rare that it receives exactly the same number of applications which it has invited for. Sometimes the issue is undersubscribed and sometimes it is oversubscribed. When a company receive lesser number of applications than it has invited for, the issue is called undersubscribed and if it gets more number of applications , the issue is called oversubscribed.
So the part of the issued capital which is taken up by the public is called subscribed capital. Issue can be under subscribed, oversubscribed or fully subscribed depending on the number of applications received from the public for the purchase of shares of the company.
4. Called up Capital
The part of Share Capital which has been called by the company from the share holders. Generally the whole amount of a share is divided into a number of instalments eg. application money, allotment money, first call, second call, final call etc. The company make these calls at regular Intervals. The amount which the company has called from the Shareholders is termed as the called up Capital. The difference between Subscribed Capital and Called-up Capital is termed as Uncalled capital.
5. Paid up Capital
It is that amount of the total Called-up Capital which has been actually received from the shareholder. Soke times the Shareholders are not able to pay the call on due date. This unpaid amount is called Calls-in-arrears.
Paid-up Capital = Called-up Capital – Calls-in-arrears
6. Reserve Capital
Reserve Capital is that part of the Uncalled capital of the company which has been reserved to be called only in case of need or liquidation of the company.