What are the Types And Features of Share Capital?

Companies frequently require financial support to maintain operations and support growth and expansion. Obtaining finance can be a difficult situation at times. As a result, businesses choose to issue share capital.

Due to the various types and features of share capital, share capital has become an effective financing mechanism for companies that would otherwise find it challenging to obtain funds for their development. Share Capital refers to the overall amount of funds a firm has obtained from issuing shares. There are various types and features of share capital.

In this article, the various types and features of share capital are described.

Meaning of share capital

A firm’s capital is split in the form of shares. The amount of money a firm generates by offering shares to the public is the share capital. Share capital refers to the portion of a company’s capital that its shareholders own. A company’s share capital is not constant and can often be altered by issuing additional shares.

Equity share capital and Preferred share capital are two categories of share capital.

Equity share capital

This kind of share capital is acquired by offering common shares to the general public, granting individuals voting rights. Additionally, it gives investors access to a portion of the firm’s annual profits and qualifies them for dividends and bonus shares.

Preferred share capital 

This kind of share capital is generated by offering shares with preferential rights in terms of earning dividends at a predetermined value. Preferred shareholders of preferred shares are entitled to dividend payments prior to regular stockholders.

When learning about share capital, it is important to comprehend the various types and features of share capital.

Types of share capital

Companies often need to secure funds to carry on with their operations and grow and expand. As such, they resort to various measures to accumulate more funds. One such way to raise capital is by issuing share capital. The various types of share capital that enterprises can utilize are:

Paid-up Share Capital

Paid-up capital is the sum that investors pay when they purchase shares of a company. The quantity of funds that stockholders have contributed to a corporation in return for shares is known as paid-up capital. Whenever a business offers its stock to shareholders primarily on the stock exchange, it generates paid-up capital.

Authorized Share Capital 

Authorized share capital is the greatest amount of money that a business can raise through a public offering. Every corporation must state the amount of authorized share capital in its Memorandum of Association (MOA). 

Only by adhering to a certain process could a modification to the authorized share capital be made via the Memorandum of Association. 

For instance, if a firm’s authorized share capital is $100,000 and its face value is set at $10, it is prohibited from issuing over 10,000 securities to the general public.

• Called-up Share Capital– The corporation might instruct the investors to make payments over time at distinct intervals rather than requesting full payment for each share’s face value. The proportion of subscribed capital the corporation requests its stockholders to pay is called-up capital.

Called-up capital refers to the outstanding share capital that the stockholders must pay. The corporation is requesting payment of that particular portion of the share capital.

• Uncalled  Share Capital-Uncalled capital is the fraction of total capital that the firm’s investors haven’t yet been asked to contribute.

• Issued Share Capital- This part of the authorized share capital is typically made available to the public for public consumption in the form of shares. It should be noted that a firm may decide not to issue all of the registered shares at once. Occasionally, a corporation may generate this financing depending on its needs.

• • Unissued Share Capital– Unissued share capital consists of that fraction of the authorized capital that has not yet been distributed. Unissued capital is the discrepancy between a firm’s authorized share capital and its issued capital.

• Subscribed  Share Capital- Subscribed share capital is the sum of money the general public has contributed, known as subscribed capital. It is the fraction of the issued capital that has received a public subscription.  

For instance, a business released to the public 5,000 shares with a face value of $20 each, of which 2,000 were purchased. As a result, the subscribed capital will be 2,000 * $20, i.e., $40,000.

• Reserve Share Capital- Reserve capital is understood to be uncalled capital that belongs to a firm and may only be accessed once it is liquidated or windup from operations. The corporation keeps funding sources aside for the benefit of its creditors and does not use them while it is still in operation. By enacting a special ordinance, a reserve capital may be established if it receives support from 3/4 of the voting members.
• Fixed Share Capital- A firm’s fixed capital consists of its current assets. These assets could be anything equivalent to immovable property, such as land, equipment, intellectual property, factories or other comparable assets.

Read More: Types of Shares

Features of share capital

The various features of share capital are:

1. The share capital of a business stays with the business until it chooses to quit functioning or go into liquidation.
2. Share capital serves as the most stable method of acquiring finance for a firm.
3. Investors often have a right to a portion of the corporation’s earnings, that could be paid out as dividends in exchange for their investment.
4. Based on their shareholding, stockholders may also be granted specific voting privileges.
5. To issue shares, a business must register on the stock exchange. Consequently, it boosts investors’ confidence in the business.
6. Shareholders are entitled to partake in the management choices of the firm because they are the legal holders of the shares.
7. The assets of the corporation are not subject to any costs when share capital is issued.
8. The corporation may choose to occasionally give away bonus shares as a way of rewarding its investors.
9. The shareholders’ obligations to the corporation are limited to the market worth of the shares that they own. They are not obligated to contribute any more funds in exchange for their existing stake.

Conclusion

Companies frequently employ share capital to fund their operations. The various types and features of share capital are described in the article above.

Consult OnDemand International if you have any additional questions about the types and features of share capital. We look forward to responding to your inquiries.