What is Share Capital Account?
A company is an artificial person and therefore they are unable to generate their own capital and that capital has to be collected from different persons. The persons from whom the capital is collected are called the shareholders and the amount that they contribute towards the business is referred to as the share capital.
The number of shareholders being too many makes it impossible to open different capital accounts for each of the members. Therefore, the different contributions of capital from the shareholders are considered under a common capital account which is known as the Share Capital Account.
Share capital can be classified into categories which are as follows:
Authorised Capital: Authorised capital is referred to as the amount that a company is entitled to issue as per the limits set by its Memorandum of Association. The company is unable to raise any amount which is more than the share capital limit set forth in the Memorandum of Association (MoA).
The authorised capital can also be referred to as the normal or registered capital and it can be increased or decreased as per the rules laid down in the Companies Act.
There is no such rule that a company needs to use or issue all of the available authorised share capital for public subscription. The company can issue share capital based on the requirement, but it must not be more than the limits prescribed for the authorised share capital.
Issued Capital: Issued capital is referred to as that part of the authorised capital that is issued to the public for subscription which includes shares allotted to the vendors and the signatories of the company’s memorandum. The authorised capital that is not offered for public subscription is referred to as unissued capital and it can be issued to the public at a later date.
Subscribed Capital: It is referred to as that part of the issued capital that is actually subscribed by the public. The issued capital and subscribed capital becomes equal when the shares issued for public subscription are subscribed fully by the public.
In the long run, subscribed capital becomes less than or equal to the issued capital. In cases where the number of shares subscribed is less than offered, then the company will allot shares for which subscription is received, and in case it is more, allotment becomes equal to the offer. The concept of oversubscription is not reflected in the books.
Called up Capital: It is referred to as that part of the subscribed capital for which the company has asked shareholders to pay. The company can decide to ask the shareholders to pay in full or just a part of the face value of the shares.
Paid up Capital: It is referred to as that part of the called up capital that is actually been paid by the shareholders. Called up capital and paid up capital will be equal when all the shareholders have paid the call amount. In an event of non-payment of a called up amount by shareholders, it is referred to as calls in arrears.
Uncalled Capital: It is that part of the subscribed capital that hasn’t yet been called upon by the company. The company reserves the right to collect this amount when there is a requirement for funds.
Reserve Capital: It is that part of the uncalled capital that a company may keep as a reserve which is only used in the event of winding up of a company. The creditors have the access to such capital in case the company is winding up.
Also Read: Types of Share Capital
This concludes the article on the topic of Share Capital of a Company, which is an important topic for Class 12 Commerce students. For more such interesting articles, stay tuned to CoolGyan’S.