Share Capital: Meaning, Kinds, and Presentation of Share Capital in Company’s Balance Sheet
What are Shares?
When the total capital of the company is divided into units of small denominations, it is known as shares. For example, if the total capital of the company is ₹ 5,00,000, divided into 10,000 units of ₹50 each, each unit of ₹50 will be called a share (of ₹ 10 each). Thus, in the above case, the company has 1,00,000 shares of ₹10 each. In order to identify the shares, they must be numbered.
What is Share Capital?
The Capital raised by a company through the issue of shares is known as Share Capital. There is no separate Capital Account for each individual or institution even after they contribute varying sums to the company’s capital. There is one Consolidated Capital Account called the Share Capital Account.
Kinds of Share Capital
The kinds of Share Capital are as follows:
1. Authorised, Registered, or Nominal Capital:
The amount, which is stated in the Memorandum of Association is termed Authorised Capital. Authorised, Registered or Nominal Capital is the maximum capital for which a company is authorised to issue shares during its lifetime.
2. Issued Capital:
That part of Authorised Capital, which is actually offered to the public for subscription is known as Issued Capital. The remaining part of the Authorised Capital, which can be issued later, is known as ‘Unissued Capital’.
3. Subscribed Capital:
That part of the capital that has been subscribed for by the public is known as Subscribed Capital. For example, 12,000 shares of Rs. 100 each are offered to the public, and the public applies for 10,000 shares, then the Subscribed Capital will be 10,000 x 100 = Rs. 10,00,000.
Subscribed Capital is shown in the Balance Sheet under two heads:
- Subscribed and fully paid up
- Subscribed but not fully paid up
(i) Subscribed and fully paid up:
When the entire or nominal (face) value of a share is called by the company, and also paid up by the shareholders, it is known as Subscribed and Fully paid-up Capital.
(ii) Subscribed but not fully paid up:
When the company has called up the full nominal value of the share, but the shareholder has not paid some part of the nominal value of the share, and when the company has not called up the full nominal value of the share, the shares are said to be Subscribed and not fully paid-up.
The Authorised Capital of Jordan Ltd. is Rs. 15,00,000 divided into 1,50,000 equity shares of Rs. 10 each. Out of these shares, the company issued 1,00,000 equity shares to the public. The public applied for 90,000 equity shares and all the money was duly received. How this will be shown in the ‘Share Capital Account’ in the Balance Sheet of the company. Also, prepare ‘Notes to Accounts’ for the same.
Notes to Accounts:
Terms like Called-up and Paid-up are also used in the case of ‘Share Capital’.
Called-up Share Capital: The part of the face value of a share which is called by the directors from the shareholders is known as Called-up Share Capital. For example, if the directors call at the rate of ₹ 50 per share on 1,000 shares of ₹100 each, ₹50,000 will be the called up Capital. The remaining ₹ 50 per share will be uncalled share capital.
Paid-up Share Capital: That portion of called-up capital that has been actually received from the shareholders is known as Paid-up Share Capital. The only point of difference between called-up capital and paid-up capital is that some shareholders may not have paid the amount of calls. The unpaid amount is called Calls in Arrear. For example, ₹ 4 has been paid against the called-up amount of ₹10, then ₹4 is the paid-up amount.
Paid-up Amount = Capital – Amount of Calls in Arrear
4. Reserve Capital:
That portion of the increased nominal capital or uncalled share capital of an organisation which shall not be called up, except in the event of winding up is known as Reserve Capital. It is not necessary to create Reserve Capital. Reserve Capital is not shown in the Balance Sheet of a Company. A firm can use Reserve Capital only at the time of winding up of the Company.
5. Capital Reserve:
The reserves which are created out of the Capital Profits of a firm are known as Capital Reserves. Here, capital profits are the profits that are not earned during the normal course of the business. However, an organisation can not utilise the capital reserve for the distribution of dividends. The items that give rise to the Capital Profits and ultimately Capital Reserves of an organisation are as follows:
- Profit on Sale of Fixed Assets.
- Profit on Revaluation of Fixed Assets.
- Profit on Redemption of Debentures.
- Profit earned by a company prior to its corporation.
- Profit on forfeiture and re-issue of shares.
- Premium on Issue of Shares and Debentures.
Presentation of Share Capital in Company’s Balance Sheet:
Notes to Accounts:
As per Schedule III of Companies Act, 2013, Share Capital is to be disclosed in a Company’s Balance Sheet in the following way:
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