Share Capital, Categories, Accounting

Share capital refers to the amount of money raised by a company by issuing shares to the public or investors. It represents the ownership capital of the company and forms an important part of its financial structure. In corporate accounting, share capital is recorded in the balance sheet under the heading of shareholders’ funds. Companies issue shares to collect funds for starting business, expansion, or meeting long term financial needs. In India, issue of share capital is governed by the Companies Act, 2013. Share capital can be of different types such as authorised, issued, subscribed, and paid up capital.

Categories of Share Capital:

1. Authorised Capital (Nominal Capital)

This is the maximum amount of capital for which a company is authorised to issue shares, as stated in its Memorandum of Association (MoA). It represents the company’s capital-raising ceiling. The company cannot issue shares beyond this limit unless it amends its MoA by passing a special resolution and filing the requisite forms with the Registrar of Companies (RoC). This limit gives creditors and investors an idea of the scale of the company’s potential financing. It is also the basis for calculating certain statutory fees payable to the RoC.

2. Issued Capital

This is that part of the Authorised Capital which the company has actually offered to the public for subscription. It includes shares allotted to shareholders. The issued capital can be equal to or less than the authorised capital but never more. The difference between authorised capital and issued capital represents the unissued capital, which the company can issue in the future without further amendments, subject to board and shareholder approvals.

3. Subscribed Capital

This is the portion of the issued capital that has been subscribed for (i.e., applied for) by the public. In case of oversubscription, the subscribed capital may be more than the issued capital, but the company cannot allot more shares than it has issued. Subscribed capital reflects the actual public response to the share issue. When an issue is fully subscribed, subscribed capital equals issued capital. If under-subscribed, it is less, and the company may proceed with a minimum subscription as per SEBI/prospectus guidelines.

4. Called-up Capital

This is the portion of the subscribed capital that the company’s Board of Directors has demanded or “called” from shareholders. A company does not necessarily ask for the full nominal value of a share to be paid at once. It can call money in instalments (e.g., application money, allotment money, calls). Called-up capital is the total amount shareholders are obligated to pay as per the calls made to date. It is the sum of money called, whether paid or not (unpaid calls become arrears).

5. Paid–up Capital

This is the actual amount of called-up capital that shareholders have paid to the company. It is the real money received by the company from its shareholders. Paid-up capital equals called-up capital minus any unpaid calls or instalments (calls-in-arrears). It is a critical figure as it represents the genuine equity funds available for the company’s business operations. Increasing paid-up capital strengthens the company’s financial base. It is also the basis for calculating dividends (distributed on paid-up value).

6. Uncalled Capital

This is the portion of the subscribed capital that the company has not yet demanded from shareholders. It represents a future reserve of capital that the company can call upon when needed, providing financial flexibility and security to creditors, as they know more funds can be called from members. This potential call acts as a cushion. However, the company must follow proper procedure (board resolution, call notice) to convert uncalled capital into called-up capital.

7. Reserve Capital

This is a special category where a company, by passing a special resolution, decides that a specific portion of its uncalled capital shall not be called up except in the event of the company’s winding up. Once created, this reserve capital cannot be converted back into ordinary uncalled capital. It acts as an ultimate protection for creditors during liquidation, ensuring that some funds are preserved exclusively for settling debts in the worst-case scenario.

Accounting for Share Capital:

Steps in Accounting for Share Capital with Journal Entries

1. Receipt of Share Application Money

When application money is received from applicants

2. Transfer of Application Money to Share Capital

On allotment of shares

3. Share Allotment Due

When allotment amount becomes payable

4. Receipt of Share Allotment Money

5. Share Call Due

For first or final call

6. Receipt of Share Call Money