Types Of Share Capital

The share capital of a company must be classified into different types while being presented in the financial statements. In this article, we look at the different Types Of Share Capital and the mode for presentation of share capital on the financial statements.

Authorised Share Capital

Authorized capital, also called nominal capital, as stated in the

Memorandum of Association (MOA) is the amount of share capital that a company can raise at any time by issuing new shares. A company cannot issue shares of the value more than the authorized capital. If capital is to be raised beyond the authorized capital, the memorandum has to be amended via a resolution passed at a general meeting of the shareholders. Once this is done and the limit of authorized capital is increased, the company may raise more finance by way of sale of share. To know more about increase of authorised capital, click here.

Issued Share Capital

Issued Capital is issued by the company from time to time. The issued capital has to be within the limits of the authorized capital as stated in the memorandum. The issued share capital is either equal to or less than the authorized capital. It can never be more than the authorized capital of the company. It is also called as called-up capital.

Authorised Capital vs Paid Up Capital Illustration

Subscribed Share Capital

Subscribed capital is increased when members have subscribed to the shares of the company. Subscribed share capital should also be equal to or less than the issued share capital. The un-allotted capital out of the subscribed share capital is called unsubscribed share capital.

Paid-Up Share Capital

Paid-up share capital is the aggregate amount of money received from shareholders for shares issued. Hence, the capital allotted and paid by shareholders is called paid-up capital. This shows the amount received either in cash or in kind by the company from the allottees of shares subscribed by them. That part of the subscribed capital that remains to be paid is called "Calls in Arrears" or "unpaid share capital". Therefore, paid-up share capital is shown after deducting from the subscribed capital and the unpaid share capital.

Presenting Share Capital on Financial Statements

While presenting the share capital of a company on the financial statements, the following information must be presented:

The number and the amount of shares are authorized.
The number of shares issued/ subscribed and fully paid /subscribed but not fully paid.
Par value per share.
A reconciliation of the number of shares outstanding at the beginning and at the end of the reporting period.
The rights, preferences, and restrictions attached to each class of shares including restrictions on the distribution of dividends and the repayment of capital.
Shares in respect of each class in the company held by its holding company or its ultimate holding company including shares held by subsidiaries or associates of the holding company or the ultimate holding company in aggregate.
Shares in the company held by each stakeholder holding more than 5 percent shares specifying the number of shares held.
Shares reserved for issue under options and contracts/commitments for the sale of shares/disinvestments including terms and amounts.
Terms of any securities convertible into equity/preference shares issued along with the earliest date of conversion in descending order starting from the farthest date.
Calls unpaid by directors and officers.
Forfeited shares showing originally paid up shares.

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Frequently Asked Questions

Common questions about Types of Share Capital Explained for Financial Statements.

Authorized share capital, also known as nominal capital, is the maximum amount of share capital a company can issue, as stated in its Memorandum of Association (MOA). A company cannot issue shares worth more than its authorized capital without amending the MOA.

Issued share capital refers to the shares issued by the company within the limits of its authorized capital, while subscribed share capital is the portion of the issued shares that have been subscribed to or purchased by investors.

Paid-up share capital is the aggregate amount of money received by the company from shareholders for the shares issued to them. It represents the actual cash or other consideration paid by shareholders for the subscribed shares.

When presenting share capital in financial statements, companies must disclose the number and amount of authorized shares, the number of issued/subscribed shares (fully paid or partially paid), par value per share, a reconciliation of outstanding shares, rights and restrictions attached to each class of shares, shares held by significant shareholders, reserved shares for options or contracts, terms of convertible securities, unpaid calls by directors/officers, and forfeited shares.

Disclosing the rights and restrictions attached to each class of shares is crucial because it provides investors and stakeholders with information about the voting rights, dividend preferences, and other privileges or limitations associated with each type of share.

Disclosing shares held by significant shareholders (e.g., holding more than 5% shares) is essential for transparency and understanding the ownership structure of the company. It helps identify potential conflicts of interest and assess the level of control or influence held by major shareholders.

Calls in arrears, also known as unpaid share capital, refer to the portion of the subscribed share capital that has not been paid by shareholders. This amount is deducted from the subscribed capital to calculate the paid-up share capital.

Disclosing shares reserved for options and contracts is important because it provides information about potential dilution of existing shareholders' ownership if these options or contracts are exercised or fulfilled. It also helps investors understand the company's future financing plans and potential changes in equity structure.

Forfeited shares are shares that were initially issued to shareholders but were subsequently forfeited or seized by the company due to non-payment of calls or other outstanding amounts. Companies must disclose the originally paid-up value of these forfeited shares in their financial statements.

Disclosing the terms of convertible securities, such as convertible bonds or preferred shares, is necessary because it provides information about the potential dilution of existing shareholders' ownership if these securities are converted into equity shares. It also helps investors understand the company's financing structure and potential future changes in equity composition.