Question

Explain in brief the main categories in which the share capital of a company is divided.

Answer 1

The division of a company’s share capital into main categories is illustrated below.

1. Authorised Capital: It is the amount stated in the Memorandum of Association. It is the maximum amount that the company can raise by issuing shares. This maximum amount can be increased in accordance with the procedures laid down in the Companies Act.
2. Issued Capital: It is a portion of the authorised capital offered by the company to the general public for subscription. For example, if the authorised capital of a company is Rs 1,00,000, divided into Rs 10 per share, then the issued capital cannot exceed Rs 1,00,000.
3. Unissued Capital: It is a part of authorised capital that has not been offered to date but can be offered to the general public in the future. In the example above, if the issued capital is Rs 80,000, the unissued capital is Rs 20,000.
4. Subscribed Capital: It is a part of the issued capital that is actually subscribed by the general public. For example, if the company has issued 8,000 shares of Rs 10 per share and public has subscribed for 7,500 shares, then the subscribed share capital of the company amounts to Rs 75,000.
5. Unsubscribed Capital: It is that part of the issued capital that is not subscribed by the public. For example, in the above case, 500 shares were left unsubscribed, resulting in an unsubscribed share capital of Rs 5,000.
6. Called up Capital: It is a part of subscribed capital that is called up by the Directors from the shareholders of a company to pay. For example, if the Directors call up Rs 6 out of Rs 10 (i.e. the face value of the share) from the shareholders of 10,000 to pay, then Rs 60,000 is regarded as called-up share capital.
7. Uncalled-up Capital: It is the part of subscribed capital that has not been called up to date but can be called up in the future as per the company's needs. For example, in the above example, Rs 4 were left uncalled from shareholders holding 10,000 shares, so Rs 40,000 is uncalled-up share capital.
8. Paid-up capital: the portion of the called-up share capital actually received from shareholders. If the entire called-up money of Rs 4 on 1,000 shares has been received except from a shareholder holding 300 shares, then the paid-up share capital is Rs 2,800 (Rs 4,000 − Rs 1,200). The amount of Rs 1,200 is called a call in arrears, meaning it has been called up but remains unpaid.
9. Reserved Capital: As per Section 99 of the Companies Act of 1956, a limited company may call up any portion of uncalled share capital in the event of winding up of the company to pay its creditors. This amount of uncalled share capital cannot be used for any other purpose and is reserved for paying back creditors, which is why this portion of share capital is called reserve capital.