Share Capital and its Kind

What is share?

A limited company can raise their funds by way of issuing shares to the general public.

The face value of the total shares issued by a company reflects the company’s share capital. A share in a company is a unit into which the total capital of the company is divided, as such share is a proportion of capital which each shareholder is entitled. Share represent a legal relationship between the company and the shareholders. 

Kind of Shares:

Equity shares or ordinary shares: ordinary shares have been defined in section 90 (1) as” A company limited by share may have different kinds of share capital and classes therein as provided by its memorandum and articles. The total of equity shares held by the company is called equity share capital. The holders of these shares do not enjoy any preferential rights. These share rank after preference shares. Dividend is dependent on the size of profits of the company, the rate of dividend is determined by the directors of the Company.

Preference shares: preference shares are entitled to receive dividend in preference to equity shares. They are entitled a fixed rate of dividend. Company may earn or not earn profit but they receive dividend. They have to preference shares have preference to equity shares at the time of payment of capital in case of winding up of the company.

Accumulative preference shares are entitled to receive arrears of dividend whenever there is sufficient profit. Participating preference shares: entitled to a fixed rate of dividend in preference to other classes of shares as well as preference right to participate in surplus profit with the ordinary shares after the rights of the ordinary shares or fulfilled.

Redeemable preference shares—these shares are to be redeemed by the company after a fix time or on its own option or at the option of shareholders.

Deferred shares / Founder shares / Management Shares: These shares are issued to the promoters or the underwriters of the Company. The holders of these shares generally do not receive dividend until dividend to all classes of shares are paid up in full.

Bonus shares: these shares are issued instead of paying dividend to the shareholders. In this way the company capitalizes the amount issued as bonus share.

Share certificate include: name and address of the holder of the shares, number of shares held, serial number allotted to a particular shares.

Allotment of Share

It is a contract between the shareholder and the company. There is an offer from the intending shareholders and the company accepts that offer by allotting the shares to that person.

Share capital: there are two main sources of funds on which a company depends in acquisition of capital for its business activities (1) Loan Capital (2) Share Capital.

Types of Share Capital.

Subscribed share capital, which is what investors have expressed an interest in, is very different from issued share capital, which is the actual issued stock.

What Is Share Capital? Share capital refers to the amount of funding a company raises through the sale of shares of stock to public investors. This means the company grants shareholders a small ownership stake in the company in exchange for monetary investment. Share capital constitutes the main source of equity financing and can be generated through the sale of common or preferred shares.

Common stock is what most people think of when they talk about the stock market. Common, or ordinary, shareholders have voting rights and participate in major company decisions. Though companies often pay dividends on common shares, they are not required to pay them.

Preferred shares, also called preference shares, do not entail the same kinds of ownership rights as common shares. However, they generally include a guaranteed dividend each year that must be paid before any dividends can be distributed to common shareholders. In short, though preferred shareholders have fewer rights, they do have a higher claim on company assets.

Though share capital refers to a dollar amount, it is dictated by the number and selling price of a company's shares. For example, if a company issues 1,000 shares for $25 per share, it generates $25,000 in share capital. Share capital is only generated by the initial sale of shares by the company to investors.

If the investor goes on to trade those shares to a third party, any profit made on the sale does not contribute to the issuing company's share capital.

Types of Share Capital

Share capital falls into one of several categories, depending on where the company is in the equity-raising process. They include:

Authorized Share Capital: The maximum amount of share capital a company is allowed to raise is called its authorized capital. Though this does not limit the number of shares a company may issue, it does put a ceiling on the total amount of money that can be raised by the sale of those shares.

Subscribed Share Capital: When a company prepares to "go public" by issuing stock for the first time, investors can submit an application expressing their desire to participate.

Subscribed share capital refers to the monetary value of all the shares for which investors have expressed an interest.

Issued Share Capital: Issued share capital is simply the monetary value of the shares of stock a company actually offers for sale to investors. The number of issued shares generally corresponds to the amount of subscribed share capital, though neither amount can exceed the authorized amount.

Called-Up vs. Paid-Up Share Capital: Depending on the business and applicable regulations, companies may issue stock to investors with the understanding the investors will pay at a later date. Any funds due for shares issued but not fully paid for are called-up share capital. Any funds remitted for shares are considered paid-up capital.