Types of share capital with example

Before reading the different types of share capital, it is advisable to know the meaning of share capital.

Meaning of share capital:

Share capital is the sum of money received by a company by selling its shares to the investors. When a company issues fresh share to the investors and raises fund, it directly increases the value of share capital.

The amount of total share capital cannot be more than the amount of authorized share capital of a company. Increase in market price of shares does not affect the value of share capital because share capital is calculated based on the par value of shares and not on the basis of market price.

Share capital is shown on the balance sheet of a company.

Types of share capital:

Types of share capital

Share capital can be categorized as authorized share capital, issued share capital, subscribed share capital, called up share capital and paid up share capital.

Authorized:

Authorized share capital refers to the total capital that a company is authorized to accept from investors by issuing shares. In simple terms, a company cannot raise capital more than its authorized capital.

It represents the capital with which a company is registered that’s why it is also known as ‘registered capital’.

Issued:

It represents that part of total authorized share capital which has been issued by a company for subscription by investors. Usually, companies do not issue all of their shares for control purpose. Thus, the part which is issued represents the issued share capital.

Subscribed:

It refers to that part of issued share capital, which has been subscribed by investors. It means when a company issues shares to raise capital, it may or may not receive subscriptions for all of its shares. The part of issued share capital for which subscription has been received is known as subscribed share capital. So subscribed share capital can be equal to subscribed share capital but not more than that.

Called up:

In general practice, a company collects the full amount of share price in more than one lot. The part of subscribed share capital which has been asked for payment represents called up share capital.

Paid up:

One of the types of share capital, paid up capital represents that part of called up share capital which has been paid by investors.

Paid up capital = Called up capital – Call in arrears.

Example of different types of share capital:

Suppose ABC Ltd. is registered with a capital of Rs 1,00,00,000 divided into shares of Rs 10 each. The company issued 8,00,000 shares to raise a fund of Rs 80,00,000 but investors subscribed for 6,00,000 shares. The company asked for Rs 4 per share out of Rs 10 (Nominal value of shares) and it received payment for only 5,50,000 shares.

Now,

Authorized share capital (10,00,000 shares of 10 each) = 1,00,00,000

Issued share capital (8,00,000 shares of 10 each) = 80,00,000

Subscribed share capital (6,00,000 shares of 10 each) = 60,00,000

Called up share capital (6,00,000 × 4) = 24,00,000

Paid up share capital (5,50,000 × 4) = 22,00,000

Call in arrears (50,000 × 4) = 2,00,000

Dos and don’ts of investing in share market

There are some dos and don’ts of investing in share market which should be considered before investing in share market. Below is the list of these basic things, which can help an individual to invest wisely:

Dos and don’ts of investing in share market

 

Dos:

1) Allocate your investment in various industries.

2) Keep patience in case of stock, you have fully analysed but not moving accordingly or moving with a slow pace.

3) If you have enough patience to hold the shares, and have a very little amount to invest then go for medium and small cap company’s stocks.

4) Always go through the news about company’s recent movement before investing in shares of that company.

Don’ts:

1) Don’t invest all of your money in one company’s or industry’s stock even after you are 100% sure that the particular industry or company is going to generate greater returns.

2) Don’t go for short term and try to keep your investment for a longer period of time.

3) Don’t expect quick returns from your investment.

4) Don’t put all your hard earned money at once. Keep some reserve for future opportunity.

5) Never purchase a stock in hurry, because of its increasing market price and if you want, then don’t purchase a large quantity of it.

6) Don’t be so rigid in selling a share at a price which is lower than your purchasing price because it may further go down and can make the situation worst.

7) Never purchase shares of amount exceeding your total amount* for quick returns because if share prices don’t move according to your expectations, you will have to sell your stock otherwise have to pay interest for that exceeding amount.

  • Some brokerage firms give you the option to invest more than your current amount and charge an interest rate on that exceeding amount which is quite higher than the market rate.