Share | Types of Shares | Types of Share Capital

  

What is a Share?

Share is an ownership document.

A limited company issues shares to collect capital. 

As saying, every long journey starts with first step; every limited company is established with the help of equity shares (common shares, common stocks, ordinary shares).

In other words no equity shares, no limited company.

Share is the fractional part of authorized capital.

Total or authorized capital of the company is divided into small fraction.

The person or firm who purchases shares of the company is known as shareholder.

Shares are transferable to other person and company.

 

Definition of share “A share is a fractional part of the total capital of the company which forms the basis of ownership or right and interest of a subscriber in the company.”

 

 

Share

Share is a document that acknowledges the ownership of a limited company to the limit of contributed amount.

It represents one unit of authorized capital.

The person who purchases shares of the company is called shareholders.

It is purchased by shareholder according to his/her interest.

 

Types of Shares

Equity shares

It is also called ordinary share, common share or common stock.

The persons who receive or purchase shares from limited company are called shareholders.

Equity shareholders do not have preferential rights in the payment of dividend and repayment of capital at the time of winding up.

 

Preference shares

It is also called preference stock. These shares can be issued only after equity shares.

The persons who receive preference shares are called preference shareholders.

These shareholders have preference rights in dividend received.

Generally, dividend rates are pre fixed.

 

Rights shares

These types of shares are issued to exiting equity shareholders of the company.

Generally, these shares are issued to equity shareholders as a dividend.

These shares are not offered to public subscriber.

These shares are added with equity share capital in balance sheet.

 

Deferred shares

These are also called founders’ shares or managements’ shares.

These are issued to founders or management as a token of love for formation of the company.

Deferred shareholders can get dividend only after equity shareholders. 

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Share application

Before issuing shares, company issues prospectus.

The persons who want to purchase shares from that company, they must submit application.

With application, they must pay first installment of face value of the share.

These applications are deposited into the mentioned bank of the company.

 

Share allotment

After receiving application, the company can provide shares to applicants.

The company sends letters to the applicants for subscribing the shares, which is called “letter of allotment.”

It shows the numbers of shares provided by the company to the applicants.

After that, shareholders pay due amount of allotment.

 

Share calls

After receiving allotment money, the company demands remaining amount of share.

This remaining amount may be in one installment or more.

Such as first call, second call and final call.

 

Types of Share Capital 

Authorized capital  | Registered capital | Nominal capital

A limited company cannot be established without authorized capital.

Generally, equity shares are authorized capital.

The maximum capital is mentioned in “Memorandum of Association.”

Total amount is divided by number of shares to find out value of one share.

 

Issued capital

The actual numbers of shares are offered to the public is called issued capital.

Generally, the company does not issue whole shares at first time.

A company issues less than authorized capital.

But it must be minimum 50% of authorized capital.

 

Subscribed capital

It is the actual shares taken or applied by the applicants.

If all the issued shares are taken by the applicants, issued and subscribed capital is same.

 

Called up capital

Under installment basis, amount of one share is called in installment.

Suppose value of one share is $/₹/Rs 100.

If the company demands Rs 80 (less than $/₹/Rs 100) it is called up capital.

The uncalled capital is retained capital.

It will be called up at the time of liquidation.

 

Paid up capital

It is the actual amount paid by the shareholders, It may be less than or equal to called up capital.

Suppose value of one share is $/₹/Rs 100.

The company has called up $/₹/Rs 80 per share but the shareholders have paid $/₹/Rs 70.

It is paid up capital.

Here, Amount = Rs = $ = £ = € = ₹ = Af = ৳ = Nu = Rf = රු = 

 

Balance Sheet

XYZ Company Ltd

As on 31^st December 20XX

Liabilities + capital	Amount	Assets	Amount
Authorized capital: 10,000 equity share @ $/₹/Rs 100 Issued capital: 6,000 equity share @ $/₹/Rs 100 Subscribed capital: 5,000 equity share @ $/₹/Rs 100 Called up capital: 5,000 equity share @ $/₹/Rs 80 Paid up capital: 5,000 equity share @ $/₹/Rs 70	– 10,00,000 – 6,00,000 – 5,00,000 – 4,00,000 – 3,50,000

 

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