What are the types of share capital?

The share capital of a company represents the entire amount of money that has been divided into shares and distributed among its shareholders. The share capital is often indicative of the value of a company. However, it is imperative to note the types of share capital. Each type is defined by specific features and represents a different kind of shareholder.

The share capital of a company is the value that is raised through the issuance of shares to members of the public who become the shareholders of the said company. Equity share capital, as the name suggests, is made through the selling of an ownership stake or equity in a company in the form of shares. Share capital is not synonymous with shares and may be of different types.

The share capital types that a company may have are as follows:

• Authorized Share Capital: There is a procedure through which a company is authorized a certain amount of share capital. This amount is reflected in a company’s memorandum of association. As per the provisions of Section 2(8) of the Companies Act, 2013, the amount reflected in the Memorandum of Associations is known as the company's authorized or registered share capital. As per the provision of law, no company can raise funds through the allotment of shares that may exceed their total authorized share capital. However, some procedures enable a company to apply for an expansion of the said amount. Authorized share capital includes both the issued shares and the unissued shares.
• Issued Share Capital: The issued share capital of a company represents the part of the authorized share capital that has been issued, allocated, or allotted to the public members in the form of shares.
• Unissued Share Capital: The unissued share capital is made of the remaining amount from the authorized share capital after deducting the issued share capital. This amount reflects the capital that the company can still proceed to raise through the issuance of shares.
• Subscribed Share Capital: The subscribed share capital represents the amount held in shares that the members of the public had applied for. This is an essential part of the issuance of share capital. In simpler words, when a company invites applications, not all of the shares necessarily have to be sold. However, the subscribed share capital indicates the number of shares that had actually been applied for.
• Called up Share Capital: Once a share is subscribed for, the shareholder has to pay its value in installments. Therefore, the value of a share is divided into different parts, and each part is called up at different times. A part of share capital is called at a specific time. These include first calls, second calls, and subsequent calls of shares. The called-up share capital represents the amount that has been called up for payment by the company issuing the shares.
• Paid Up Share Capital: The shareholders who had subscribed for the shares may pay against the subscribed shares, which are then stored in reserves, known as Capital Reserves. However, as per the Companies Act, 2013, there is no minimum amount of paid-up share capital that a company needs to have.
• Reserve Share Capital: The reserve share capital is determined through a resolution of the shareholders and owners of the company. It is mentioned in the Articles of Association of such companies. These are reserves that a company is required to keep at any point in time. A company is not permitted to sell its share capital reserves until and unless it reaches a point of bankruptcy. The main aim behind maintaining these reserves is to ensure that a company retains its liquidity which may help clear its liabilities during the time of winding up.