What Are Types Of Share Capital In A Private Limited Company | Ebizfiling

  

 Introduction

 

Share capital is referred to as the capital that is raised by the company by issuing shares to investors. Share capital is a requirement for businesses to finance their operations. The issue of new shares will raise the company's share capital.

 

While presenting financial statements, a company's share capital must be divided into different types. In this article, we look at the different types of share capital issued in a Private Limited Company in India.  

 

 Types of Share Capital  

 

1. Authorized Share Capital  

 

The amount of share capital that a company can raise by issuing new shares is known as authorized capital. It is also known as nominal capital as specified in the Memorandum of Association. A company is not permitted to issue shares more than its authorized capital. If the company wants to raise the authorized capital, then a resolution should be passed at the shareholding meeting to alter the MOA. After this is completed and the limit of authorized share capital is increased, the company can raise more funds by selling shares.

 

2. Issued Share Capital  

 

This is issued by the company from time to time. The issued share capital must fall within the limits of authorized share capital as specified in the memorandum of the Private Limited Company in India. The authorized capital is equal to, or less than, the issued share capital. It can never exceed the company's authorized share capital.

 

3. Subscribed Capital  

 

The amount of issued share capital is known as subscribed share capital which has been sold to the public. The public doesn’t need to subscribe to the whole of the issued share capital.

 

Let us look at an example– If a company offers 16000 shares of Rs. 100 each and the public applies only for 12000 shares, then the issued share capital would be Rs 16 lakh, and subscribed share capital would be Rs 12 lakh. The total number of outstanding shares plus treasury shares is equals to the total number of issued share capital.

 

NOTE: Once the share has been issued and purchased by investors, these shares are called shares outstanding. This issuing of shares gives the shareholders ownership in the corporation.

 

4. Paid-Up share capital  

 

Paid-up share capital is the amount of capital against which the company has received payments from shareholders. When a firm sells its stock, it generates paid-up capital. Paid-up capital will always be less than authorized capital because a Private Limited Company cannot issue shares above its permitted capital. Paid-up capital can be either fully or partially paid up.

 

There is no minimum requirement for the Company's paid-up capital under the Companies Amendment Act, 2015. Therefore, a company can now be established with just Rs. 1,000 as paid-up capital.

 

 Key takeaways 

 

Companies issue shares to raise money by reducing the ownership interest of the original shareholders. A lot of individuals get confused between the shares and shares capital. Share is the portion of the investment made by the shareholder in the Private Limited Company, whereas share capital is the money raised by the company through the sale of shares to investors.