Share Capital in a Company: Meaning, Types and Alteration

Share Capital is the money invested in any company and can be categorized into authorized, subscribed, paid-up, issued and called-up capital. A minimum of Rs. 1 Lakh of paid-up capital is required to initiate the business.

What is a Share Capital?

The funds raised by a company in exchange of its shares are known as the share capital of a company. It is a source of finance for the company and the amount of shares in a company can vary from one another.

In case, a company wishes to raise more money through the issue of its share then it can increase its Authorised Share Capital through a legal procedure from the Ministry of Corporate Affairs.

After careful examination of all the expenses and investments required in a company, the amount is mentioned in its Memorandum of Association under the Capital Clause. Usually, the promoters of the Company take care of the investment activities and decide the amount to be invested in the company after its incorporation.  

Types of Share Capital

There are different types of share capital through which a company can raise its funds to carry on the business operations. It includes –

Authorised Share Capital

The capital generated by a company through the sale of its shares is known as the Authorised Share Capital. It is the total amount which a company is authorised to raise from its investors through shares.

The amount of shares issued to the shareholders by the company is called issued or outstanding shares and it can never exceed the total amount of Authorise Share Capital of the company.

In simple words, the amount of shares issued cannot be more than the Authorise Share Capital in a Company. It is also known as Registered Capital since it represents the total amount with which the company is registered.

For example – If 10,000 shares of a Company is for Rs. 100 each, then the Authorise Share Capital would be Rs. 1 Lakh.

Paid-Up Share Capital

Paid-up Share Capital is the total amount paid by the shareholders for the shares held by them. The shareholders need to pay the amount of shares they have purchased within a specific period of time.

If the total money for the shares is not received from the shareholders then it falls under calls-in-arrears. For example –

The company is supposed to receive Rs 2 Lakh from its shareholders for the shares held by them however; they receive only Rs. 1,50,000. In this case, the remaining balance of Rs. 50,000 is the calls-in-arrears.

Note: Called and Paid-Up Capital will be same if the shareholders deposit all the money for their shares.

Called-Up Capital

The Board of Directors of a Company allot shares to applicants once all the applications are submitted successfully. A bit of the amount is paid with the application while the rest of the amount is called during the allotment of shares and calls (specific period to pay the share amount).

The part of capital which is asked for payment of the shares is known to be called-up capital.  For example –

If Rs 50 per share (originally Rs. 100) is called by the company for its 10,000 shares then the called-up share capital will be Rs. 5 Lakh. The partial money left is the un-called share capital.

Note: The shareholders are bound to pay the money for the shares held by them whenever it’s called for.

Issued Share Capital

A Company issue shares for a certain amount to the general public. It is not necessary to issue the entire capital at the same time and the part of it which is not issued is known as Unissued Capital. Issued Share Capital is the amount of capital offered to the public for the issue of shares.

For example – If a company have total of 10,000 shares for Rs. 100 each out of which it offers only 8,000 shares to the public then,

Rs. 8 Lakh will be Issued Share Capital and Rs. 2 Lakh will be Unissued Share Capital.

In simple words, it reflects the amount of authorized capital which is issued by the Company for the allotment of shares.

Subscribed Share Capital  

The amount issued for subscription to the public is known as Subscribed Share Capital. It is possible that at times, the company does not receive subscription for all the shares therefore, only the amount for which shares are issued will fall under the Subscribed Share Capital.

The amount of subscription received depends largely on the goodwill of the company. There are chances that the company might receive more application than the shares actually offered.

Share Capital of a Company during Registration

After the Companies Act amendment in 2015, now, there is no minimum share capital that is required to initiate a business. The applicant can decide by themselves after examining all the expenses and investments of the company. Usually all the companies registered under Ministry of Corporate Affairs (MCA) are incorporated with a share capital.

However; Companies Limited by Guarantee are incorporated without a Share Capital. Such companies have members as guarantors on part of shareholders. The liability of such members is limited to the amount they have agreed to pay in case of winding-up of the company.

 The liability of the member is also towards the –

  • Payment of debts /liabilities of the Company
  • Assets of the Company
  • Costs and expenses of Winding-Up.

The profits earned by such companies are re-invested for promotion and business expansion. Such company raises funds through the amount of guarantee brought in by the members in the company.

Stamp Duty and Share Capital

Stamp Duty is a legal tax paid on certain filings to ensure the authentication of documents and information attached with it. The Share Capital of a Company and Stamp Duty are related to each other.

Every Company needs to pay a stamp duty while incorporating their business. The stamp duty of each state differs from each other and depends on the amount of authorized share capital of a company.

For example – If the authorized share capital of a Company is Rs.1 Lakh with 20 members and is to run the business in Chhattisgarh then the stamp duty to be paid is Rs. 1510.

It is mandatory to pay the stamp duty of the respective state during the incorporation of a company.  You can also calculate the amount that you need to pay on the Ministry of Corporate Affairs.

How to Check Share Capital of a Company?

There are two ways to check the Share Capital of a Company. You can either visit the Ministry of Corporate Affairs (MCA) online portal to check the Master Data of any company including all of its share capital.

Quick Company, a legal registration company for the first time has brought all the Company Data at one place. You can check information like Company Directors, Timeline (updated events of every company), Documents, Financials and Capital Involved.

The benefit is real-time updated data without the need of any Corporate Identity Number (CIN). You just need to enter the name of the company you wish to search the data for.

Can Authorize Share Capital be increased?

Yes, the authorized capital can be increased after seeking permission from all the members, directors and shareholders of a company. A special General Meeting is called where the amount to be increased is decided.

The increase of Capital will help the company to –

  • Get Bank Loans
  • More funds can be issued based on the equity capital
  • It eases the way of settling the external investments of the company.

A company can increase its Authorize Share Capital by filing an application (SH-7) on the Ministry of Corporate Affairs (MCA) along with the prescribed fee and required documents. You might also require attaching form MGT-14 along with the application with respect to the resolution passed for changing the capital structure.

Once you make the payment, a confirmation e-mail will be sent to the registered e-mail of the applicant confirming the successful submission of the application.

The application for increase in the capital needs to be filed within 30 days of conducting the General Meeting. If a company is unable to file the form within 30 days then, an additional fee in the form of penalty is also applied according to the time period of delay.

For example – The Company needs to pay 2.5% of normal fees for a delay up to 6 months and 3% of normal fee for a delay beyond 6 months.

Capital Gains on Share Transfer

If the owner of shares in a Company needs to pay Capital Gain Tax if he transfers/sell his share to any other person. The Tax is paid on the difference between the amount for which the share is sold and the amount for which it was initially purchased.

If the shares are transferred/ sold after 12 months of its purchase then, the seller can make a long-term capital gain while, if they are sold within 12 months then the gain is short-term.  

As per the Financial Budget, 2018, if the seller makes a capital gain of more than Rs. 1 Lakh on the sale/transfer of equity shares then 10% tax is paid by the owner.

Reducing the Share Capital

Capital Reduction is when a company decreases its Share Capital by passing a special resolution to-

  • Reduce the liability on the shares
  • Cancel any paid-up share capital which is not represented by any assets
  • Pay-off any paid-up share capital in excess
  • Return the excess to the shareholders
  • Eliminate any losses

It can also be explained as the Cancellation of Uncalled Capital of the Company after which the number of shares in the company will decrease.  In some cases, the shareholders may receive cash for the amount of shares cancelled. 

How to Reduce?

  • The Company needs to file an application (form RSC-1) to the National Company Law Tribunal (NCLT) to reduce the share capital along with a fee of Rs. 5000.
  • Once the application is submitted successfully, NCLT will issue a direct notice (to central Government, Registrar of Companies, SEBI and creditors) within 15 days.
  • If any of the authorities have an issue with the capital reduction, the same will be communicated to the NCLT within 3 months of receipt of notice or else they will consider no objection against reduction of share capital.
  • In case any objection is raised the same needs to be clarified by the Company and submitted to the NCLT within 7 days of receiving the objection.
  • NCLT after examining the response, may accept the application, cancel it or even call for a hearing.

The terms and conditions for approval of capital reduction will be mentioned in RSC-6 and the same will be issued by the Registrar of Companies on RSC-7.

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