Under the Indian Companies Act, 2013, a company’s share capital is classified into several types. Here are the main types of share capital, along with relevant sections:
- Authorized Capital (or Nominal Capital) [Sec 2(8)]: Also known as registered capital, this is the maximum amount of share capital that a company is authorized to issue to shareholders. The amount is specified in the company’s Memorandum of Association.
- Issued Capital [Sec 2(50)]: This is the total value of the shares that the company has issued to shareholders for subscription. It cannot exceed the authorized capital.
- Subscribed Capital [Sec 2(86)]: This is the part of the issued capital which has been subscribed or agreed to be paid by the shareholders. Not all of it may be called up or paid up.
- Paid-up Capital [Sec 2(64)]: This is the part of the subscribed capital which the shareholders have actually paid up.
- Called-up Capital [Sec 2(15)]: This part of the subscribed capital has been called up by the company. It includes both the amount paid and unpaid by the shareholders.
- Uncalled Capital: This part of the subscribed capital has not been called up by the company. It can be called up later when the company needs funds.
- Preference Share Capital [Sec 43(a)]: This type of capital is held by preference shareholders who have a preferential right to receive dividends before any dividend is distributed to equity shareholders. They also have a preferential right to return of capital, in case of winding up of the company.
- Equity Share Capital [Sec 43(b)]: This type of capital is held by equity shareholders. These shareholders have voting rights and they receive dividends after the preference shareholders have been paid.
Issued Share Capital vs Subscribed Share Capital – What is the Difference?
Issued share capital and subscribed share capital are two different concepts in corporate finance, each with a unique role.
Issued Share Capital
This refers to the total value of shares that a company has issued to shareholders. Not all shares that a company is authorized to sell (known as authorized share capital) need to be issued. The company may choose to issue a portion of its authorized shares based on its funding needs. The decision to issue shares often depends on the company’s growth plans, capital requirements, and market conditions. The issued share capital can be less than or equal to the authorized share capital but cannot exceed it.
Subscribed Share Capital
This refers to the part of the issued share capital which investors (both public and private) have bought, i.e., subscribed to. In other words, it’s the total value of shares that shareholders have shown an interest in and paid for. The subscribed share capital can never exceed the issued share capital.
In essence, issued share capital is the total value of shares a company has decided to sell, whereas subscribed share capital is the total value of shares that investors have actually bought. It’s possible that not all issued shares get subscribed if there isn’t enough interest from investors. In such a case, the issued share capital would be greater than the subscribed share capital.
Difference between Equity and Preference Shares
Under the Indian Companies Act, 2013, and the Companies (Share Capital and Debentures) Rules, 2014, shares issued by a company can be classified mainly into two types: equity shares and preference shares. Here are some key distinctions between the two:
- Voting Rights: Equity shareholders have voting rights in the company. These rights can be exercised in major decisions, including the appointment or removal of directors.
- Dividends: The dividends for equity shareholders are not fixed and are declared from the profits of the company, only after dividends on preference shares are paid. Equity shareholders have a right to all the remaining profits after all other obligations are met.
- Return of Capital: In the case of winding up of the company, equity shareholders are the last to receive their share of capital.
- Conversion: Equity shares cannot be converted into preference shares.
- Voting Rights: Preference shareholders generally don’t have voting rights. However, they acquire voting rights if the company fails to pay dividends for a specified period of time.
- Dividends: Preference shareholders enjoy a preferential position when it comes to the payment of dividends. They receive a fixed rate of dividend before any dividend is paid to the equity shareholders.
- Return of Capital: In the case of winding up, preference shareholders are paid before equity shareholders.
- Conversion: Depending on the terms of issue, some types of preference shares can be converted into equity shares.