Share Capital

SHARECAPITAL

WHAT IS A SHARE??? 



“ by share in a company is not any sum of money but an interest measured by the sum of money and made up of diverse rights conferred on its share holders by the articles of the company which constitute a contract between him and company.” Share capital is one of the units in which total capital of company is divided.

WHAT IS STOCK??? Stock in a company means ‘ a bundle of fully paid up shares put together for convenience so that it may be divided into any amount and transferred into fractions and sub divisional without regard to original face value of the shares.  A stock cannot issue the stock originally and can only be obtained by conversion. a. if shares are fully paid up b. The articles empower the company to convert shares 

DIFFERENCE BETWEEN SHARE AND STOCK SHARE

STOCK

A company can make an original issue of shares.

A company cannot make an original issue of stock.

The shares can be fully paid up or Partly paid up.

The stock must always be fully paid up.

The shares are always of fixed The stock has no such fixed denomination. FOR EX..Rs 10 each denomination. Registration of share capital with the A stock can be issued only after registrar is compulsory before Passing a special resolution if Issuing shares. articles permit. A share has definite number by A stock has no such number. which it is distinguished from others.

Modes of issue of shares: For cash 1. At par 2. At premium 3. At discount  For consideration other than cash 1. Right Share 2. Buy-back 3. Employee stock option plan 

Types of shares

As per the provision of section 85 of the Companies Act, 1956, the share capital of a company consists of TWO classes of shares, namely:  Preference Shares Equity Shares

Preference Shares: According to Sec 85(1), of the Companies Act,1956, a preference share is one, which carries the following two preferential rights: •In respect of dividends at a fixed amount or at a fixed rate. •To repayment of capital on winding up.

Equity shares According to section 85 (2), of Companies Act, 1956, Equity share can be defined as the share, which is not preference shares. In other words equity shares are those shares, which do not have the following preferential rights: 

Rate of dividend is not fixed, depends on the profit of the company.  Ownership lies in hands of the equity shareholders.

Distinction between Preference Shares and Equity Shares Basis of difference Rate of dividend

Preference Share

Equity Share

The rate of dividend on The rate of dividend on preference share is fixed. equity share is changed from year to year depending upon the availability of profits.

Payment of dividend They have a right to receive Dividend on equity shares is dividend before any paid, after any dividend is dividend is paid on equity paid on preference shares. shares. Participation in Preference shareholders are management not entitled to participate in management. Winding up

Arrears of dividend

On the winding up, they have a right to return of capital ahead (before) of the capital returned on equity shares.

Equity shareholders are entitled to participate in management. In this case, they have been paid only when preferences capital is paid in full.

If dividend is not paid on In case of equity shares, these shares in any year, dividend cannot accumulate. the arrear of dividend may accumulate.

Voting rights Preference shareholders do not have any voting rights.

Equity shareholders enjoy voting rights.

SHARE CAPITAL

 The

term share capital denotes the amount of capital to be raised or to raised by the issue of shares of the company and used in many expressions

Cont’d 

Funds raised by issuing shares in return for cash or other considerations. The amount of share capital a company has can change over time because each time a business sells new shares to the public in exchange for cash, the amount of share capital will increase. Share capital can be composed of both common and preferred shares. Also known as "equity financing"

Cont’d 

The amount of share capital a company reports on its balance sheet only accounts for the initial amount for which the original shareholders purchased the shares from the issuing company. Any price differences arising from price appreciation/depreciation as a result of transactions in the secondary market are not included.

Types of share capital  Authorized

capital  Issued capital  Subscribed capital  Called up capital  Un-called capital  Paid-up capital  Reserve capital

AUTHORISED SHARE CAPITAL 

It is the maximum amount of share capital stated in a company’s memorandum which the company is, for time being , authorised to raise.



As the memorandum is registered with registrar , it is also called registered capital.

ISSUED SHARE CAPITAL  It

means the nominal value of that part of the authorized capital which is allotted for cash or for other consideration than cash and includes shares subscribed by the signatories of memorandum.  Moreover , issued capital means that part of share capital which has been actually issued or allotted by the company.

SUBSCRIBED SHARE CAPITAL  It

means the paid up value of that part of the authorised which is allotted for cash or for other consideration than cash and include the shares subscribed by the signatories of memorandum.  Thus , in a company where shares are fully paid up the ‘subscribed capital’ would be equal to its ‘issued capital'

Cont’d  Called

up capital is that part of allotted share capital which has been called up by the company.  Uncalled capital  Paid- up capital is called up capital minus calls in arrears  Reserve capital is that part of uncalled share capital which has been reserved by the company to be called up in the event of winding up of a company.