Accountancy · Ch 7 — Company Accounts
Meaning of a Company and Kinds of Share Capital
Meaning of a Company and Kinds of Share Capital
A company is an artificial person, created by law and registered under the Companies Act, 2013, having a separate legal identity distinct from its members, perpetual succession, a common seal (or authorised signatures), limited liability for its shareholders, and freely transferable shares (in the case of a public company). Because a company can raise capital from a large number of investors through shares, its share capital is classified into several layers, each answering a slightly different question about how much capital the company may raise, has offered, and has actually collected. TN's HSC Accountancy syllabus builds this chapter around the same universal company-law and accounting principles that also run through Accountancy in the CBSE/NCERT Commerce curriculum.
| Kind of Capital | Meaning |
|---|---|
| Authorised (Nominal/Registered) Capital | The maximum amount of share capital a company is permitted to raise, as stated in its Memorandum of Association; it can be increased only by following the procedure laid down in the Act. |
| Issued Capital | That part of the authorised capital which the company has actually offered to the public/investors for subscription. |
| Subscribed Capital | That part of the issued capital which has actually been subscribed (applied for and allotted) by investors. |
| Called-up Capital | That part of the subscribed capital which the company has called upon shareholders to pay so far (application, allotment, and any calls made). |
| Paid-up Capital | That part of the called-up capital which shareholders have actually paid; Paid-up Capital = Called-up Capital − Calls in Arrears. |
| Uncalled Capital | That part of the subscribed capital which has not yet been called up. |
| Reserve Capital | A portion of the uncalled capital which a company resolves, by special resolution, not to call up except in the event of and for the purposes of the company's winding up. |
Note the nesting: Authorised ≥ Issued ≥ Subscribed ≥ Called-up ≥ Paid-up. A company's Balance Sheet always discloses each of these figures for share capital, so a student must be able to place any given figure correctly in this hierarchy.
The maximum share capital a company is permitted to raise, as stated in its Memorandum of Association.
The part of the authorised capital actually offered by the company for subscription.
Subscribed Capital is the part of issued capital actually taken up by investors; Called-up Capital is the part of subscribed capital the company has demanded payment for so far.
The part of called-up capital actually received from shareholders; Paid-up Capital = Called-up Capital − Calls in Arrears.
A part of the uncalled capital which a company resolves, by special resolution, to call up only on winding up.