Capital od company

1. Capital of company
A. Pooja Narayan
Disha College

2. Meaning Of Share
• The sum total of moneys raised by a company fro private
sources or from public, is “capital” of the company.
• Such capital is usually divided in to certain units of fixed
amounts. These units are called “shares”.
• The person who hold such shares are called “shareholders” of
the company.

3. • According to Section 2(84) Share means a share in share capital
of a company & includes stock.
• A share is a fractional or constituent part of the company . It is
the interest of a shareholder in the company, measured by a
sum of money for the purpose of liability & dividends in the
first place, & of interest in the second; & also consisting of a
series of contracts as contained in the articles of association.
• A share is evidenced by a share certificate.

5. • The Memorandum and Articles of Association of the company
prescribe the rights and obligations of shareholders.
• Section 44 of the Companies Act, 2013, states that shares or
debentures or other interests of any member in a company are
movable properties. Also, they are transferable in the manner
prescribed in the Articles of the company.

6. Classification of capital
• Authorized capital
• Issued capital
• Called up capital
• Paid up capital
• Uncalled capital

7. Nominal or Authorized or Registered Capital
• Section 2(8) of the Companies Act, 2013, defines Nominal
Capital as the amount of capital that the Memorandum of the
company authorizes as the share capital of the company.
Hence, it is the registered amount authorized that can be
raised by issuing shares.
• The company also pays stamp duty in this amount.

8. Issued Capital
• Issued capital is a part of the Authorized capital, offered by the
company for the subscription. This includes the allotment of
shares. Section 2(50) of the Companies Act, 2013, offers this
definition. Further, it is mandatory for companies to disclose its
issued capital in the balance sheet (Schedule III of the Act).

9. Subscribed Capital
• Section 2(86) of the Companies Act, 2013,
defines Subscribed capital as the part of the
capital being subscribed by the members of
the company. It is the number of shares that
the public takes.

10. Called up Capital
• According to Section 2(15) of the Companies
Act, 2013, Called up Capital is the part of the
capital which the company calls for payment.
This is the total amount that the company
calls-up on the issued shares.

11. Paid Up capital
• Paid up capital is the part of called up capital actually paid or
credited by shareholders on the issued shares.
• Paid up capital represents the money that the company has
not borrowed. Also, it is the total amount of money that the
company receives from shareholders in exchange for shares of
stock.

12. • Q1. The public subscribes for 10,000 shares of a company of
Rs. 100 each. The company calls up Rs. 50 per share but
receives the payment only from 9,000 subscribers. Calculate:
• Subscribed capital
• Called up capital
• Paid up Capital

13. Answer:
• Since the subscription is for 10,000 shares at
Rs. 100 per share, the subscribed capital is:
10,000 x 100 = Rs. 100,000.

14. • company calls up Rs. 50 per share. Hence,
the called up capital is: 10,000 x 50 = Rs.
50,000.

15. • However, only 9,000 subscribers pay. This means that 1,000
subscribers default. Hence,
• Arrears = 1,000 x 50 = Rs. 5,000.
• Therefore, the paid up capital is:
• Called up capital – Arrears = 50,000 – 5,000 = Rs. 45,000.

16. Share
• A share is the interest of a shareholder in a
company. The right to receive dividend ,
attend meetings, voting rights & share in
surplus assets of the company if any in the
event of the company being wounded up.

17. Stock
• Stock is the aggregate of fully paid up
shares, consolidated & divided, for the
purpose of convenient holding in to
different parts.

18. KIND OF SHARE CAPITAL (SECTION 43)
• The share capital of companies limited by share shall be of two
kinds, namely;
• (a) Equity share capital;
• (b) Preference share capital.

19. Equity Share Capital:
• “Equity share capital” with reference to any company limited
by shares, means all share capital which is not preference
share capital.
• The Equity share capital—
• i. with voting rights; or
• ii. with differential rights as to dividend, voting or otherwise in
accordance with such rules as may prescribed.
• These differential rights may have difference related to
dividend, voting or otherwise in accordance with rules.

20. Preference Share Capital:
• Preference share capital of the issued share capital of the company
which carries or would carry a preference right with respect to –
• a) Payment of dividend, either as a fixed amount or an amount
calculated at a fixed rate. Which may be either be free of or subject
to income tax; and
• (b) Repayment of amount of share capital or share capital deemed
to be paid up, whether or not, there is preferential right specified in
the memorandum or article of the company.

21. kinds of preference shares
 Cumulative Preference Shares
 Non-Cumulative Preference Shares
 Redeemable Preference Shares:
 Non-Redeemable Preference Shares:
 Participating Preference Shares:
 Non-participating Preference Shares:
 Convertible Preference Shares:
 Non-convertible Preference Shares:

22. Cumulative Preference Shares
• A preference share is called cumulative when the outstanding
payment of a dividend is cumulative.
• If a company does not have the financial capability to pay a
dividend to the owners of its preference shares at any point of
time, then it will not pay a dividend to its common shareholders,
as long as the preference shareholders are not paid.
• The dividend amount gets carried on to the next year.

23. For Example
• Suppose a company X has 10,000 preference shares @ 8% of ₹100 each.
But the dividends for 2018 and 2019 have not been paid to the owners of
its preference shares so far.
• So now the directors before they can pay a dividend to the common
shareholders for the year 2020, must pay the preference shareholders an
amount of ₹2,40,000 i.e. for the year 2018, 2019 and 2020 before making
any payment to the common shareholders for the year 2020.

24. Non-Cumulative Preference Shares
• A non-cumulative preference shareholder is only payable from each year’s net
profit. A non-cumulative preference shareholder will not be paid from future profits.
• So, if a company undergoes a loss in that year, then the outstanding payment of
dividend cannot be claimed in subsequent years like in the case of cumulative
preference shares.

25. For example
• A company Y normally issues a ₹70 quarterly dividend to its
preferred shareholders. But the directors feel that there is not
sufficient cash flow in the third quarter to pay a dividend.
• As this is a non-cumulative stock, the company has no
obligation to pay the missing dividend, and the holders of
these shares have no claim against the company Y.

26. Redeemable Preference shares
• These are shares which can be redeemed or repaid after
the fixed period as issued by the company or even
before at the option of the company.

27. Non-redeemable
• These shares cannot be redeemed during the
life of the company.

28. Participating Preference Shares
• Participating preference share is where the issuing company is entitled
to pay an increased dividend to the owners, in addition to preference
dividend at a fixed rate,
• Also, the holders of participating preference shares may have the right
to share the surplus asset of the company, when it’s winding up.

29. Non-Participating Preference Shares
• The holders of non-participating preference shares
are entitled only to a fixed rate of dividend and do
not have any share in the surplus profit.

30. Convertible Preference Shares
• Convertible preference shares are the type of
preference shares where the holder has the
option to convert into the common/equity share
of the company.

31. Non-Convertible Preference Shares
• Non-convertible preference shares do not carry the
right of conversion into the company’s common shares.

32. Alteration of capital

34. Increasing of Authorized Share Capital
• Authorized Share Capital means the registered and the nominal
capital, with which the company was incorporated. The company
can raise its share capital by doing Alteration in Capital Clause in
the MoA.

35. Consolidation of Share Capital
• The company can also do Alteration in Capital by consolidating the
smaller denominations shares into larger denominations shares.

36. Conversion of Share Capital
• The company can do Alteration in Capital by converting the fully paid-up
shares into the Stock. The re-conversion of the stocks into fully paid up
shares can also be done.

37. Sub-division of Share Capital
• In this type, the company sub-divides its shares of
smaller amount than that what was fixed by the
MoA.

38. Cancellation of Share Capital
• There are some shares which are not taken by any person and
diminish that amount of share capital by the number of shares
so cancelled

39. Procedure:
• The following procedure should be followed for altering the share
capital of the company:
• (i) Authorised by article:
• The right to alter the share capital must be given in the Articles of
Association of the company.

40. • (ii) To pass a resolution:
• Alteration can be effected in the capital by passing an ordinary
resolution in the general meeting of the company.
• (iii) Confirmation of court is not required:
• For such an alteration of capital, the confirmation of court is not
required.

41. • (iv) Notice to the registrar:
• The company shall give notice of the alterations to the Registrar
within 30 days of doing so.
• (v) Change by registrar:
• The Registrar will record the above notice and make necessary
alterations in the memorandum and articles of the company.

42. • (vi) Economic penalty:
• If any default is made in complying with the above provisions, the company
and every officer of the company who is in default is punishable with a fine
which may extend to fifty rupees for every day the default continues.
• (vii) Effect of conversion of shares into stock:
• If a company has converted any of its shares into stock, such provisions of
the Act as are applicable only to shares shall cease to apply to such shares
which have been converted into stock.

43. (viii) Information of increase in share capital:
• The information must be given to the Registrar within 30 days if the company has
increased its authorised capital or, in the case of a company not limited by shares.
Notice of the increase must be given to the Registrar even when the new shares
may not have been issued to any shareholder, if default is made in complying with
the provisions, the company and every officer who is in default is punishable with a
fine, which may extend to Rs. 50 for every day the default continues.

44. Type # 2. Reduction in Share Capital:
• A company limited by shares or a guarantee
company with a share capital is permitted to
reduce its share capital by Section 100