Share Capital & Types of Share Capital

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    11-Oct-2015

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Def^ of Share Capital:Funds raised by issuing shares in return for cash or other considerations. The amount of share capital a company has can change over time because each time a business sells new shares to the public in exchange for cash, the amount of share capital will increase. Share capital can be composed of both common and preferred shares; also known as "Equity financing".Investopedia explains 'Share Capital'

The amount of share capital a company reports on its balance sheet only accounts for the initial amount for which the original shareholders purchased the shares from the issuing company. Any price differences arising from price appreciation/depreciation as a result of transactions in the secondary market are not included.

For example, suppose ABC Inc. raised $2 billion from its initial public offering. Over the next year, the total value of its shares increases to $5 billion. In this case, the value of the share capital is still only $2 billion because ABC Inc. had received only $2 billion from the sale of its securities to the investing public.

Types of Share Capital: Authorized share capitalis also referred to, at times, as registered capital. It is the total of the share capital which a limited company is allowed (authorised) to issue. It presents the upper boundary for the actually issued share capital. Shares authorized= Shares issued +Shares unissued Issued share capitalis the total of the share capital issued (allocated) to shareholders. This may be less or equal to the authorised capital. Previously, issued capital comprised common equity shares as well as all preferred shares. But now only irredeemable preferred shares can be shown as part of issued share capital. The shared capital of a company is constantly changing. They company can give out more shares to their shareholders or buy them back, increasing or reducing the issued share capital, respectively. Issued share capital is not affected by the market price of shares. The value of issued capital presented in the financial statements is simply the number of issued shares multiplied by the face value of each share. For example, if a company issues 50,000 shares for $1 and the market price is at $2 per share, the issued share capital would still only be $50,000, and not $100,000. Issued Capital = Number of shares actually issued * par value Shares outstandingare those issued shares which are not treasury shares. These are all the shares held by the investors in the company. Treasury sharesare those issued shares which are held by the issuing company itself, the usual result of abuyback. Shares issued =Shares outstanding+Treasury shares Subscribed capitalis the portion of the issued capital, which has been subscribed by all the investors including the public. This may be less than the issued share capital as there may be capital for which no applications have been received yet ("unsubscribed capital"). Called up share capitalis the total amount of issued capital for which the shareholders are required to pay. This may be less than the subscribed capital as the company may ask shareholders to pay by installments. Paid up share capitalis the amount of share capital paid by the shareholders. This may be less than the called up capital as payments may be in installments ("calls-in-arrears"). Reserve Capital is part of theauthorized capitalof a firm that has not beencalledup and is, therefore, available fordrawingin case of aneed.