Share capital: meaning, nature and types

The essentials

Share capital is the capital a company raises by issuing shares. It is divided into small units called shares, each of a fixed nominal (face) value. Company law classifies share capital into stages, and the Companies Act, 2013 allows two kinds of shares: equity shares and preference shares.

Key points

• Authorised capital: the maximum capital a company may issue, as stated in its memorandum.
• Issued capital: part of authorised capital offered to the public for subscription.
• Subscribed capital: part of issued capital actually taken up by the public.
• Called-up capital: part of subscribed capital the company has asked shareholders to pay.
• Paid-up capital: called-up capital actually received (called-up capital minus calls in arrears).
• Uncalled capital: subscribed capital not yet called. Reserve capital: part of uncalled capital that the company resolves to call only on winding up.
• Preference shares carry a preferential right to dividend at a fixed rate and to repayment of capital on winding up.
• Equity shares are all shares that are not preference shares; they carry voting rights and get dividend after preference shareholders.

Exam tips

Remember the order: Authorised ≥ Issued ≥ Subscribed ≥ Called-up ≥ Paid-up.

Common mistakes

• Treating reserve capital as the same as a capital reserve. Reserve capital is uncalled capital; a capital reserve is created from capital profits.
• Thinking preference shareholders normally have full voting rights like equity shareholders.