Accountancy · Ch 8 — Company Accounts
Meaning and Classes of Share Capital
Meaning and Classes of Share Capital
A joint stock company is a form of business organisation that raises its long-term capital from a large number of members by issuing shares. The total capital a company is permitted to raise is stated in its Memorandum of Association, and it is divided into small units of a fixed value called shares. Every Andhra Pradesh Intermediate (BIEAP) Second Year Commerce student needs to be clear about the different stages a company's share capital passes through before it actually becomes cash in the company's bank account.
Stages of share capital
| Term | Meaning |
|---|---|
| Authorised (Nominal/Registered) Capital | The maximum capital a company is authorised to raise, as stated in the Capital Clause of the Memorandum of Association. |
| Issued Capital | The part of the authorised capital that the company actually offers to the public/members for subscription. |
| Subscribed Capital | The part of the issued capital that has actually been subscribed (applied for and accepted) by the public. |
| Called-up Capital | The part of the subscribed capital that the company has so far asked (called upon) the shareholders to pay. |
| Paid-up Capital | The part of the called-up capital that has actually been received from the shareholders. |
| Uncalled Capital | The part of subscribed capital not yet called up; a portion of it may be kept as 'Reserve Capital', callable only on winding up. |
A company can never, across all its calls put together, demand more than the face value of a share — application, allotment and call amounts must always add up to exactly the face value (any amount above face value is kept in a separate premium account, discussed in the next section).
Classes of shares
Section 43 of the Companies Act, 2013 recognises two kinds of share capital:
- Equity shares carry voting rights in proportion to the amount of capital held, and are entitled to dividend only after preference shareholders have been paid; the rate of dividend is not fixed and depends on the profits available for distribution.
- Preference shares carry a preferential right to receive a fixed rate of dividend before anything is paid to equity shareholders, and a preferential right to repayment of capital on winding up. Preference shares may be cumulative or non-cumulative, participating or non-participating, and convertible or non-convertible; the 2013 Act requires that any preference shares issued by a company limited by shares must be redeemable within a stated period, since perpetual (irredeemable) preference shares are no longer permitted for such companies.
The accounting rules used to record share capital under the BIEAP Second Year Accountancy syllabus rest on the same double-entry logic taught in any Indian corporate-accounting curriculum, including the CBSE/NCERT Class 12 treatment of company accounts — the Companies Act, 2013 applies uniformly across the country, even though the illustrative numbers and the textbook differ from state to state.
The maximum share capital a company is permitted to raise, fixed in the Capital Clause of its Memorandum of Association; can only be increased by altering the Memorandum.
The portion of authorised capital actually offered to the public or existing members for subscription at a given time.
The portion of issued capital that applicants have actually applied for and been allotted.
The portion of subscribed capital the company has demanded from shareholders so far, through application, allotment and call instalments.
The portion of called-up capital actually received in cash from shareholders; called-up capital minus Calls-in-Arrears equals paid-up capital.
A share carrying voting rights and a variable, residual right to dividend after preference shareholders are paid; the main risk-bearing capital of the company.
A share carrying a fixed preferential dividend rate and priority over equity shares in repayment of capital on winding up, but ordinarily without voting rights; must be redeemable under the Companies Act, 2013.