Share capital

Share capital or issued capital (UK English) or capital stock refers to the portion of a company's equity that has been obtained (or will be obtained) by trading stock to a shareholder for cash or an equivalent item of capital value. For example, a company can set aside share capital, to exchange for computer servers instead of directly purchasing the servers from existing equity. Share capital usually comprises the nominal values of all shares issued, less those repurchased by the company. It includes both common stock (ordinary shares) and preferred stock (preference shares). If the market value of shares is greater than the their nominal value (value at par), the shares are said to be at a premium (called share premium, additional paid-in capital or paidin capital in excess of par). What Does Share Capital Mean? 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".

Types of Share Capital

1.Authorised Share Capital is also referred to, at times, as registered capital. This is the total of the share capital which a limited company is allowed (authorized) to issue to its shareholders. It presents the upper boundary for the actually issued share capital (hence also 'nominal capital'). The capital which is mentioned in the capital clause of the memorandum of assoiciation is called as authorised capital. For example, if the capital requirement of the business in the long run is Rs. 10,00,000 and current requirement is only Rs. 50,000. The amount of Rs. 10,00,000 is called as authorised capital. To collect Rs. 50,000, if you issued shares, that Rs. 50,000 is called as issued capital. If the shareholders subcribed only for Rs. 40,000, this Rs. 40,000 is called as subcribed capital. If you call only Rs. 25,000 for your current requirement, then this 25,000 is called as called up capital . Say for example one share holder has not paid his share, you received only Rs. 24,000. This Rs. 24,000 is called as paid up capital. Dividends are paid only on paid up capital. The liability may or may not arrise in the future is called as contingent liability. If you discount a bill in the bank, the bill may honour or dishonour on the due date. in the mean time this is considered as contingent liability. it is shown as foot note to the balance sheet.

2.Issued Share Capital is the total of the share capital issued to shareholders. This may be less than the authorized capital.

The total of a companys shares that are held by shareholders. A company can, at any time, issue new shares up to the full amount of authorized share capital. Also called subscribed capital, or subscribed share capital. Issued (share) capital is the amount of nominal value of share held by the shareholders. It is the face value of the shares that have been issued to the shareholders. Issued share capital and share premium represent the amount invested by the shareholders in the company. It is also known as the subscribed capital or subscribed share capital (US - stock capital). Issued (share) capital is the capital which has been issued to the shareholders and which still outstands. The shares which have been redeemed or repurchased by the company for holding them in treasury are not a part of the issued share capital. Previously, issued capital comprised common equity shares as well as all preferred shares. But now only irredeemable preferred shares can be shown as part of issued share capital. Issued capital consists of the shares that have been sold to the shareholders against cash or some other consideration. For example, if a company sold 100,000 shares which have a face value of $ 1 per share, then the issued share capital of such a company is $100,000. Share capital of a company can change. Some companies issue new shares to the existing shareholders or new shareholders. These additional shares increase the value of issued share capital. Some companies even redeem or repurchase their own shares. This will reduce the amount of issued share capital. It should be kept in mind that issued share capital is not affected by the market price of shares. The value of issued capital presented in the financial statements is simply the number of issued shares multiplied by the face value of each share. If company has issued 100,000 equity shares of face value $ 1 per share and the market value of each share is $ 2, even then the issued share capital of such a company will be $ 100,000 (Not $ 200,000).

3.Subscribed Capital is the portion of the issued capital, which has been subscribed by all the investors including the public. This may be less than the issued share capital as there may be capital for which no applications have been received yet ('unsubscribed capital'). Subscribed capital is that part of the issued capital which is subscribed (accepted) by the public.

4.Called up Share Capital is the total amount of issued capital for which the shareholders are required to pay. This may be less than the subscribed capital as the company may ask shareholders to pay by installments Called-up capital is the part of a company's issued capital which the board of directors of the company has called upon the subscribers to make payment. Called up capital is a part of subscribed capital which has been called up by the company for payment. For example, if 10,000 shares of Rs. 100 each have been subscribed by the public and of which Rs. 50 per share has been called up. Then the subscribed capital of the Company works out to Rs. 1,00,000 of which the called up capital of the Company is Rs. 50,0000.

5.Paid up Share Capital is the amount of share capital paid by the shareholders. This may be less than the called up capital as payments may be in arrears ('calls-in-arrears'). The amount of a company's capital that has been funded by shareholders. Paid-up capital can be less than a company's total capital because a company may not issue all of the shares that it has been authorized to sell. Paid-up capital can also reflect how a company depends on equity financing. Paid up capital is the actual amount of capital in money you or your other directors have contributed towards the company as opposed to the authorised capital of the company. Authorised capital is the limit to the amount of capital the company is allowed to raise and thats usually decided at the formation of the company .Or if extra capital is needed beyond that which the company is authorised to raise (its authorised caiptal), upon application to a court or to the registrar of companies, the authority grants the company the right to raising extra capital (increase in auhorised capital). So if for instance you form a Pte Ltd Company with an authorised capital of $1,000,000 it means you are allowed to raise (through issue of shares or acquiring assets) up to $1,000,000. Thats your authorised capital. However upon formation of company, it is usual for directors and founding members to subscribe to $2 worth of shares each. The company would issue only 2 x $1.00 shares to each director subscriber . It would thus have issued 4 shares at 2 shares per director for $2 each director ($1.00 per share) issued and paid up by the 2 directors making it $4 paid up capital company. The balance remaining shares remain in the authorised category. When you need to raise more money and bring in newer directors you issue from the remainder unissued capital of the company.

CLASSES OF CAPITAL 3 Classifications of Capital; namely, debt capital, equity capital, and venture capital. Below briefly discusses each classification.

DEBT CAPITAL:

Debt Capital is financing in the form of a business loan. Like a personal loan, a business loan requires the business to pay a rate of interest on the amount borrowed. For example, you may receive a loan of $25,000, to be paid in full within 5 years at an interest rate of 12%. The 12% interest is considered the return an investor receives for lending you their money. The advantage of this type of financing is that you, the business owner, don't relinquish any control of your business.

EQUITY CAPITAL:

Equity Capital does not require you to pay an investor a rate of interest, but rather you provide them with an ownership of your business. As a result, the investor will share a portion of the profits in hopes of earning a satisfactory rate of return. For example, you may offer an investor 10% of your business if he invests $30,000 into it. In this situation, your business will not pay the investment back to the investor, rather the investor will share a portion of your business's profits each year (or whatever arrangement is made). Be sure to discuss this matter with a qualified accountant before agreeing to equity financing. A lawyer may also be called upon to develop a contract between you and the equity investor.

VENTURE CAPITAL:

Venture Capital usually involves investments from wealthy business people, individuals and/or a group of investors who form an investment company. These entities usually invest into high risk ventures. If you have been "turned down" by traditional financing methods, you may decide to solicit a venture capitalist. These investors may "charge" businesses a high interest rate (debt capital) or request an ownership percentage of the company (equity capital) for their investment. In many cases, however, venture capitalists demand both - a high interest rate and an ownership percentage of the company (both debt and equity capital).

ALTERATION OF CAPITAL: A change in the number of authorized shares a company may issue. Authorized shares are the total shares a company is permitted by its charter to issue, as opposed to the number it actually has issued. To alter share capital, a company must amend its charter and/or bylaws and register the change with the appropriate regulatory authority. DEFINITION: Increase or decrease in (or rearrangement of) the authorized share capital of a firm, as permitted in its articles of association. Any such change requires (1) passing of a resolution to the effect in the firm's general meeting, and (2) filing of the notice of alteration with the appropriate governmental office such as (in the UK) the Registrar Of Companies.

Procedure for increase in authorised capital of the company 1. Convene a Board Meeting after issuing notices to the directors of the company to decide about the increase and to fix the date, time, place and agenda for convening a General Meeting. 2. To pass an Ordinary Resolution (Special Resolution if so required by articles) for the same. 3. Download Form -5 from www.mca.gov.in 4. Fill the details required such form except signature of the concerned person. 5. Opt the option to pay stamp duty electronically along with ROC fee on Form-5 with concerned ROC. 6. Please attached altered MOA and AOA with the Form-5 filed with concerned ROC . 7. File physically MOA along with stamped form-5 with concerned ROC (if required). 8. After approval of Form-5 from ROC make necessary changes in MOA and AOA and in all other papers and documents. If you are increasing Authorised Capital by Special Resolution or also change in Article of Association it is required to file Form 23 with concerned ROC within 30 days from the date of passing such resolution. However it is not necessary to pas Special Resolution for change in share capital.

CORPORATE LAW
ASSIGNMENT

SUBMITTED TO: Mrs. Jagjeet Kaur

SUBMITTED BY: Prabhjot Kaur 2010-MGB1-403