By Admin 
If you’ve come across the term share capital while exploring business or investments, you might be wondering what it actually means. In simple terms, share capital is the money a company collects by selling shares to investors, who become shareholders. This capital is a crucial part of how a company funds itself and allocates ownership.
What is Share Capital?
Share capital is the money a company raises by selling shares to investors. These investors, known as shareholders, buy a piece of the company, giving them partial ownership. When you own shares, you have a stake in the company’s profits, and sometimes, you even get a say in important company decisions.
In other words, share-capital is the total amount of money the company collects from selling its shares. Companies use this money to fund their operations, grow the business, or invest in new projects. It’s a vital source of funding for many businesses.
Why Do Companies Issue Shares?
Companies issue shares to raise money without borrowing from banks. Instead of taking out loans and paying interest, they sell a portion of their company to investors in exchange for cash. By doing this, they get the funds they need to operate and expand.
The advantage for the company? They don’t need to repay the money like a loan. Instead, shareholders benefit from the company’s success, either through dividends (payments to shareholders) or when the value of their shares increases.
How Share Capital Works
Imagine a company needs ₹10 lakh to launch a new product. Instead of borrowing the money, they decide to issue shares. They set a price for each share and offer these shares to the public or private investors. The money they raise through selling these shares is their share–capital. In return, those who buy the shares become part-owners of the company.
Key Points About Share Capital:
- Ownership: When you buy shares, you own a part of the company and share in its growth and profits.
- Different Types of Shares: Companies can issue various types of shares, such as common or preferred shares, each offering different rights and benefits.
- A Key Source of Funding: Share-capital allows companies to raise money without taking on debt or paying interest.
Why is Share Capital Important?
For companies, issuing share capital is an important way to raise money without taking on debt. For investors, buying shares gives them a chance to own part of a company and potentially earn returns if the company does well. It’s a mutually beneficial arrangement: companies get the funds they need, and investors get a piece of the potential profits.
Types of Share Capital
In India, there are five key types of share capital that define a company’s financial structure. Let’s take a closer look at each of them in straightforward language.
1. Authorized Share Capital (The Maximum Limit)
This is the maximum amount of capital a company is allowed to raise by issuing shares. The limit is set when the company is first registered. If the company needs to raise more capital later on, it must increase this limit through legal procedures.
Why It’s Important:
It defines the company’s total capacity to issue shares, acting as a ceiling for its financial growth through equity.
2. Issued Share Capital (Shares Offered to Investors)
This is the portion of the authorized shares capital that the company has offered to investors. The company doesn’t need to issue the full authorized amount right away; it can do so over time, based on its financial needs.
Why It’s Important:
Issued capital shows how much of the total authorized capital the company has actually put up for sale to investors.
3. Subscribed Share Capital (Shares Taken by Investors)
Once the company offers shares to the public or private investors, not all of them may be taken up. Subscribed shares capital refers to the portion of the issued shares that investors have committed to buying.
Why It’s Important:
This gives an idea of how much interest investors have shown in the company’s shares. If 1,000 shares are issued and only 800 are subscribed, the subscribed shares capital reflects those 800 shares.
4. Paid-up Share Capital (Money Received)
Paid-up shares capital is the actual amount of money the company has received from shareholders for the shares they’ve bought. Sometimes investors don’t pay the full amount for shares immediately, so this reflects what’s been paid so far.
Why It’s Important:
This shows how much real capital the company has on hand from shareholders. For example, if shareholders have agreed to pay ₹100 per shares but have only paid ₹75, the paid-up capital is ₹75 per shares.
5. Called-up Share Capital (Payments Requested by the Company)
In some cases, companies ask shareholders to pay for shares in installments. Called-up shares capital is the amount the company has requested shareholders to pay so far. The rest, which hasn’t yet been requested, is known as uncalled capital.
Why It’s Important:
This reflects how much the company has demanded from shareholders and how much of their commitment is still pending.
Conclusion
Knowing these five types of shares capital is essential for understanding how companies in India raise money and manage their equity. Whether you’re looking to start a business, invest in one, or just want a better grasp of the financial landscape, understanding the difference between authorized, issued, subscribed, paid-up, and called-up capital will guide you toward more informed decisions.