Different Types Of Capital Document

Topic: Different types of capital in a Limited Company Nominal, Authorised or Registered capital: This is the sum stated in the memorandum of association of a company limited by shares as the capital of the company with which it is registered. It is the maximum amount which the company is authorised to raise by issuing shares. This is the capital on which it had paid the prescribed fee at the time of registration, hence also called Registered capital. As and when this is increased, fees for such increase will have to be paid to the Registrar in accordance with the provisions in the Companies’ Act. This is divided into shares of uniform denominations. The amount of nominal capital is fixed on the basis of the projections of fund requirements of the company for its business activities. Issued capital: It is part of the authorised or nominal capital which the company issues for the time being for public subscription and allotment. This is computed at face value or nominal value. Subscribed capital: It is that portion of the issued capital at face value which has been subscribed or taken up by the subscribers of shares in the company. It is clear that the entire issued capital may or may not be subscribed. Called up capital: It is that portion of the subscribed capital which has been called up or demanded on the shares by the company e.g., where Rs.5 has been called up on each of 100000 shares of a nominal value of Rs.10/- each, the called up capital is Rs.5lacs. Uncalled capital: It is the total amount not yet called up or demanded by the company on the shares subscribed, which the shareholders are liable to pay as and when called up, e.g., in the above case, uncalled capital is Rs.5lacs. Paid-up capital: It is that part of the total called up amount which is actually paid by the shareholders e.g., out of Rs.5lacs, called up, only 4.5lacs get paid by the subscribers, the paid up capital is Rs.4.5lacs. Unpaid capital: It is the total of the called up capital remaining unpaid, determined by the difference between the called up capital and paid-up capital. Reserve capital: It is that part of the uncalled capital of a company which the company has decided by special resolution not to call excepting in the event of the company being wound up and thereafter that portion of the share capital shall not be capable of being called up except in that event and for that purpose only. Merits and demerits of “limited companies” Merits: 1. It is a well structured form of organisation; 2. It is a perpetual entity and change in the management does not affect the continuity of the entity, unlike in the case of partnership firms; 3. The level of acceptability in the market of a limited company is quite high with widely held public limited companies commanding the highest degree of

acceptability. Hence they have wider access to resources starting from a private limited company with the widely held public limited company having the maximum resources; 4. The shareholders have limited liability and they are not held personally responsible for any loss of the company. Their liability is limited to the value of their share investment in the company.

Demerits: 1. The formation of a limited company is far more complex with requirement of registration and other legal formalities to be gone through; 2. The companies are subject to a number of statutes, like The Companies’ Act, The Income-Tax Act for compulsory audit, SEBI rules and guidelines for raising equity from the public as in the case of widely held companies, legal clearance for mergers and acquisitions etc. and their administration is far more complex than that of partnership firms; 3. In case of large public limited companies, the ownership is not exclusive, but shared with a lot of other investors; 4. Private limited companies are comparable with partnership firms from the point of view of control and administration and their shareholders do not enjoy “limited liability” on the losses of the company, at least in the case of bank borrowing. The banks, in order to tie the owners up, obtain the personal guarantees of the owners as collateral security for loans given by them;