Categories of Share Capital

Meaning of Share Capital:

Share capital is the sum total of money received by an enterprise by selling its shares to the investors. When an enterprise issues new share to the investors and raises the capital, it raises the value of share capital.

To put it in other words, share capital comprises of all funds raised by an enterprise in exchange for shares of either preferred or common shares of stock. The amount of share capital or equity financing a company has can differ. An enterprise that wishes to increase more equity can acquire approval to issue and sell extra shares, hereby raising its share capital.

Types of Share Capital :

Categories of Share Capital

Share capital can be classified as: approved share capital, issued share capital, subscribed share capital, called up share capital and paid up share capital. From accounting point of view the share capital of the enterprise can be categorised as follows :

  • Authorised Capital: Authorised capital is the amount of share capital in which a company is allowed to issue its Memorandum of Association. The company is not supposed to raise more than the amount of capital as mentioned in the Memorandum of Association. It is also known as Registered or Nominal capital. The authorised capital can be either decreased or increased as per the process furnished in the Companies Act. It should be understood that the company need not issue the complete authorised capital for public subscription at one time. Relying upon its necessity, it may circulate share capital but in any scenario, it should not cross more than the amount of authorised capital.
  • Issued Capital: It is that portion of the authorised capital which is usually circulated to the public for subscription comprising the shares assigned to the merchants and the endorsers to the enterprises memorandum. The authorised capital which is not proffered for public consent is called as ‘unissued capital’.
  • Subscribed Capital: It is that chunk of the issued capital which is subscribed and contributed by the public. When the shares proffered for public subscription are contributed entirely by the public, however, subscribed capital and the issued capital would be similar. Ultimately, the issued capital and subscribed capital are similar because if the total number of shares, that is subscribed is less than what is proffered, the company allocate only those number of shares for which the subscription has been received.
  • Called up Capital: It is that chunk of the subscribed capital which is called upon the shares. The company may ascertain to call the complete amount or just a chunk of the shares face value.

The above mentioned is the concept that is explained in detail about Categories or Types of Share Capital for the class 12 Commerce students. To know more, stay tuned to BYJUS.