Explain the meaning of Authorised Capital, Issued Capital, Subscribed Capital and Paid-up Capital, and state any two points of difference between equity shares and preference shares.

Question

Accepted Answer

**The four stages of capital**

- **Authorised Capital**: the maximum capital a company can raise, as fixed by the Capital Clause of its Memorandum of Association. It can only be increased by formally altering the Memorandum.
- **Issued Capital**: out of the authorised capital, the part the company actually decides to offer to the public or existing members at a given time; the rest remains unissued.
- **Subscribed Capital**: out of the issued capital, the part that has genuinely been applied for and allotted to the public. If an issue is undersubscribed, subscribed capital will be less than issued capital.
- **Paid-up Capital**: out of the subscribed capital, the part the company has both called for and actually received in cash from shareholders (i.e., called-up capital minus Calls-in-Arrears).

**Equity shares vs preference shares**

| Basis | Equity Shares | Preference Shares |
|---|---|---|
| Rate of dividend | Not fixed; depends on profits available after paying preference dividend | Fixed rate, paid before equity shareholders |
| Voting rights | Full voting rights in proportion to holding | Generally no voting rights, except in specified circumstances |
| Priority on winding up | Paid only after preference shareholders and creditors | Priority over equity shares in repayment of capital |
| Redemption | Not redeemable during the company's life (equity capital is permanent) | Must be redeemable within a period stated at issue, under the Companies Act, 2013 |

> [!ANSWER]
> Authorised → Issued → Subscribed → Paid-up Capital represent successively narrower slices of a company's capital, ending in the cash actually collected. Equity shares carry a variable, residual dividend and full voting rights; preference shares carry a fixed preferential dividend and priority in repayment on winding up, but must be redeemable and generally carry no vote.

Q.Explain the meaning of Authorised Capital, Issued Capital, Subscribed Capital and Paid-up Capital, and state any two points of difference between equity shares and preference shares.

Concept understanding — Share Capital and Classes of Shares

Basis	Equity Shares	Preference Shares
Rate of dividend	Not fixed; depends on profits available after paying preference dividend	Fixed rate, paid before equity shareholders
Voting rights	Full voting rights in proportion to holding	Generally no voting rights, except in specified circumstances
Priority on winding up	Paid only after preference shareholders and creditors	Priority over equity shares in repayment of capital
Redemption	Not redeemable during the company's life (equity capital is permanent)	Must be redeemable within a period stated at issue, under the Companies Act, 2013

Q.Explain the meaning of Authorised Capital, Issued Capital, Subscribed Capital and Paid-up Capital, and state any two points of difference between equity shares and preference shares.

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