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Share Capital

There are numerous definitions of the word "capital." An economist, an accountant, a businessman, or a lawyer may all interpret it differently. A layperson defines capital as the funds that a business has acquired through the issuance of its shares. It uses this money to buy stock in trade and commercial real estate, which are referred to as the fixed capital and circulating capital, respectively, to satisfy its needs.

Sometimes, the term "loan or borrowed capital" refers to funds borrowed by the corporation and guaranteed by the issuance of debentures and other instruments. However, this is not how the word "capital" should be used.

The term "capital" refers to the share capital of a corporation limited by shares, which is the capital expressed in terms of rupees divided into a predetermined number of shares worth a set value apiece. For instance, if a company's share capital is $1,000,000, it can be divided into 10,000 shares at $10 each or 1,000 shares at $100 each, depending on which option is more practical for the business.

Classification of equity securities:

According to company law, "capital" refers to a business's share capital, which is divided into:

• Authorized, Registered, and Normalized Capital

The maximum amount of capital that a company may distribute to its shareholders in the form of shares is known as authorised capital. The MOA of the company specifies the initial authorised capital of the firm, which is typically one lakh rupees.

An organisation isn't allowed to give away more shares than what's allowed. As a result, a corporation must revise its MOA in accordance with the Companies Act if it intends to issue shares above the maximum.

• Issued Capital:

Shares that have been issued to investors are those that they hold. These investors may be retail investors, high-profile institutions, or private people. The monetary value of a company's shares that are actually made available for purchase by investors is known as issued share capital. The quantity of subscribed share capital and the number of issued shares must match. The permitted share capital cannot be exceeded by the sum of subscribed share capital and issued share capital.

• Subscribed Capital:

The share capital that the investors commit to investing in when they are issued is known as subscribed capital or subscribed shares. To raise money, a corporation must find investors willing to buy new shares when they are issued. The shares that investors are waiting to purchase, however, are known as subscribed share capital, and the corporation is not required to find buyers.

• Referred to as Up Capital:

The share that the investor purchases with the promise of a future instalment payment is known as "called-up share capital. Some businesses offer shares to investors while allowing them to pay the full price later in order to encourage investment. Initially, the business does not demand complete payment. However, everything will be done under the correct guidelines.

• Paid-Up Share Capital:

The amount of money shareholders have given a corporation in exchange for stock is known as paid-up capital. When a business sells its shares to investors directly on the primary market, typically through an initial public offering (IPO), it generates paid-up capital. No new paid-up capital is produced when investors trade shares on the secondary market since the selling shareholders receive the money rather than the issuing business.

AUTHORISATION, SUBSCRIPTION, AND PAID-UP CAPITAL PUBLICATION

The Act states that any notice, advertisement, or other official publication, as well as any business letter, billhead, or letter paper, of a company that contains a statement of the amount of the company's authorised capital shall also include a statement, in an equally prominent position and in equally conspicuous characters, of the amount of the unauthorised capital.The corporation will be required to pay a fine of 10,000 rupees for failing to comply with the aforementioned standards, and each officer who is in default will be required to pay a fine of 5,000 rupees for each default.

The Share's Nature:

(a) A share is a right to a specific amount of a company's share capital, which carries with it particular responsibilities and privileges both during the company's existence and at its winding-up. The Laws of England from Halsbury's

(b) A share, so long as a company is still in existence, is the right to a portion of the profits.

(c) A share, debenture, or other interest of any member in a company is considered a movable property under Section 44 of the Companies Act of 2013, and it can be transferred in accordance with the conditions outlined in the company's articles.

(d) In India, a share is considered a good. The Sale of Goods Act of 1930 defines "goods" as any type of movable property other than money and actionable claims, which includes stock and shares.

(e) Section 45 of the Companies Act of 2013 states that each share in a company with a share capital must be identified by its distinctive number, but this provision does not apply to shares held by individuals whose names are listed as holders of beneficial interests in those shares in the records of a depository.

Share Classifications:

1. Preference Share Capital-

Priority Share Capital is the money raised by a business through the issuance of preference shares (also known as "preference stock"). Preference Even before equity stockholders, shareholders are entitled to dividends first. Although they share ownership in the business, they do not have any voting rights to choose the management. Every time the business chooses to declare a dividend, they are entitled to a set rate of remuneration. Additionally, in the event of a company dissolution, they have the right to capital repayment.

Four groups of preference shares exist:

• Cumulative and non-cumulative preference shares

This type of preference share is the most prevalent. Cumulative preference shares have an advantage over ordinary preference shares in that dividends can be received even if the company incurs a loss. Unpaid dividends continue to accumulate and are carried forward as arrears.

Non-cumulative preference shares do not accumulate unpaid dividends. If the company doesn't pay dividends for a number of years, the amount past due cannot be recovered in subsequent years.

• Shares with convertible and non-convertible preferences

Investors are free to convert their preferred shares into common equity shares in this case. This can be done at a specific conversion ratio and after a specific amount of time. For instance, if the conversion ratio for a preference share is 2:1, you will receive two equity shares in return for one preference share.

The ability to convert their preference shares into equity shares is not available to these preference shareholders.

• Shares with Participating and Non-Participating Preferences

Dividends are typically paid out at a set pace. However, participating preference shareholders may also have the opportunity to receive bigger dividends if equity shareholders receive a higher payout. This is typically carried out when a business makes enormous earnings in a specific year.

The dividend payout rate for non-participating preference shares is fixed. Therefore, the preference shareholders will only receive set dividends even if the company realises enormous profits.

• Preference shares that can be redeemed and those that cannot.

When redeemable preference shares are involved, the issuing business has the option to buy the shares back from the holder prior to maturity. The term "callable preference shares" also applies to them.

These preference shares are only redeemable in the event that the company ceases operations or goes out of business.

2. Equity share capital:

A corporation issues equity shares to obtain capital at the expense of diluting its ownership. To acquire partial ownership of the company, investors might purchase equity share units. Investors will become shareholders in the company and contribute to its total capital by purchasing equity shares. By virtue of the shares they own, equity shareholders are the true proprietors of the business. Investors who invest in stocks gain from dividends and capital growth. Equity owners receive financial rewards as well as voting rights in important business decisions.

One has voting rights, while the other has differences in dividends, voting, and other factors.