Shares and Share capital- meaning and its kinds

SHARES-MEANING AND ITS KINDS

A joint stock company divides its capital into units of equal denomination. Each unit is called a share. These units i.e. shares are offered for sale to raise capital. This is termed as issuing shares. A person who buys share/ shares of the company is called a shareholder and by acquiring share or shares in the company he/she becomes one of the owners of the company. Thus, a share is an indivisible unit of capital. It expresses the proprietary relationship between the company and the shareholder. The denominated value of a share is its face value. The total capital of a company is divided into number of shares.

Kinds of shares

According to the Companies Act, a company can issue the following types of Shares:

(i) Preference shares (ii) Equity shares

(i) Preference shares

A preference share is one which carries following preferential rights over other type of shares called equity shares in regard to the following:

Ø   Payment of dividend

Ø   Repayment of capital at the time of winding up of the company.

(ii) Equity shares

All shares which are not preference shares are equity shares. Holders of these shares receive dividend out of the profits of the company after the payment of dividend has been made to the preference shareholders. Equity shareholders have the right to elect directors of the company. Equity shares are the permanent source of capital:

Basis of difference	Equity shares	Preference shares
1. Rate of dividend	Rate of dividend on these shares is not fixed and depends upon the decision of the Board of directors.	Rate of dividend on these shares is fixed.
2. Payment of dividend.	Dividend on these shares is paid after payment of dividend made to preference shareholders.	Dividend on these shares is paid before  payment of dividend made to equity shareholders.
3. Refund of share capital on winding up of the company.	On winding up of the  company equity share holders get refund of capital only after preference share holders have been paid off.	Preference shareholders have a preference over equity shareholders in regard to refund of capital in case of winding up of the company.
4. Voting rights.	Shareholders have voting rights in all matters.	Shareholders can vote only in special circumstances.
5. Redemption	Shares cannot be redeemed during the life of the company.	Shares can be redeemed as per terms of issue.

SHARE CAPITAL–MEANING AND ITS TYPES

A joint stock company estimates its future capital requirements. The amount of the capital is mentioned in the capital clause of the Memorandum of Association registered with the Registrar of the Companies. Total capital is divided into a number of small indivisible units of fixed amount and each such unit is called a share. A share is nothing but a share in the capital of the company. As the total capital of the company is divided into shares, the capital of the company is called share capital. Share capital of the company is divided into following categories:

Nominal/Authorised/Registered capital

It refers to the maximum amount of share capital which a company is authorised to issue as per its Memorandum of Association.

Issued capital

Issued capital is that part of the authorised capital which the company offers to public, which may include vendors, for subscription or purchase. A company may issue its entire authorised capital or may issue it in parts from time to time as per the needs of the company. It means and includes the nominal value of shares issued by the company for (a) cash, and (b) consideration other than cash to (i) promoters of a company, and (ii) others.

Subscribed capital

It is that part of issued capital which is taken up or subscribed by those who are offered for subscription. Company may receive application for equal to, more than or less than shares issued. This capital can be equal to or less than the issued capital. The portion of nominal value of the issued share capital which is actually paid (or subscribed) by the shareholders forms part of the subscribed capital.

Called up capital

It is that part of the issued/subscribed capital which is called up by company to pay on the allotted shares and is to be paid by the shareholders. The portion of the issue price of the shares which a company has demanded or called from shareholders is known as called up capital

Uncalled capital

Uncalled Capital is that portion of the issued/subscribed capital that is not called up by the company on the shares allotted.

Paid up capital

It is the portion of called up capital which is paid by the shareholders, to calculate the paid up capital, the amount of installments in arrears is deducted from the called up capital.

Unpaid capital

That part of the called up capital which is called but is not paid by the shareholders is called unpaid capital. i.e. calls-in-arrears.

Reserve capital

Company may keep some part of its share capital uncalled and kept in reserve to be called only in case of need at the time of its winding up. This is known as Reserve capital. For this, a special resolution will have to be passed by the company. Thus it is that portion of the uncalled capital which a company has decided to call only in case of liquidation of the company.