what is share capital?
what is a Share Capital Accounting?Types of shares Capital
Concept and meaning of sharewhat is a Share Capital Accounting?Types of shares Capital
The shares capital of a company is divided into a number of units of fixed value. Each unit is called a share. It is the proportionate part of the share capital and indicates ownership in a company. In other words, shares represent the extent of ownership or interest in the assets and profit of the company. The company act, 2063 defines a shares s "a shares or part in the share capital of the company".
A share is issued by a company in the form of certificate with its seal. It is a personal and movable property, which can either be mortgaged or pledged or transferred. It is measured by a sum of money for the purpose of liability and of interest i.e. dividend of its holder. The persons who contribute money through shares are known as 'shareholder'. A shareholder enjoys certain such as right to dividend, right to vote etc and is liable to pay the unpaid balance on the shares, if any.
Types of shares
According to the Nepal company atc, a company can issue two types of share:
• Equity share or ordinary share or common stock
• Preference share or preferred stock
The share, which does not carry any preferential or special right on dividend refund or share capital on liquidation of company, is called equal shares, since, it has no preferential right, it is also known as ordinary share or common stock.
Dividend of such shares is payable only after the pqyment of preference dividend. The rate of dividend on these shares is not fixed. The board of directors declares dividend on such shares according to the dividend policy as well as the availability of profit after dividend on preference shares. No dividend will be paid on these shares, if there are no profits or insufficient profit in a particular year. These shares are redeemed only after the redemption of preference shares at the time of liquidation of the company.
Equity shareholders enjoy voting rights. They have right to elect directors and participate in the management and control of the company. They also share the residual profits.
Importance of equity shares
The following are the importance of equity shares:
1. It provides a permanent fund to the company since, it is a permanent type of capital. Such shares and redeemed at the time of liquidation or winding-up only.
2. It is not necessary for a company to pay a fixed rate of dividend to the equity shareholders.
3. It provides q sense of safety shied for the collection of loan capital.
4. The equity shareholders enjoy voting right for the selection of the board of directors (BOD).
5. The equity shares can be easily sold or transferred to others.
6. It is not necessary for a company to mortgage or pledge its assets for issuing equity shares.
The following are the importance of equity shares:
1. It provides a permanent fund to the company since, it is a permanent type of capital. Such shares and redeemed at the time of liquidation or winding-up only.
2. It is not necessary for a company to pay a fixed rate of dividend to the equity shareholders.
3. It provides q sense of safety shied for the collection of loan capital.
4. The equity shareholders enjoy voting right for the selection of the board of directors (BOD).
5. The equity shares can be easily sold or transferred to others.
6. It is not necessary for a company to mortgage or pledge its assets for issuing equity shares.
Preference share
The share, which carries preferential right on dividend and refund of capital in case of liquidation of company, is called preference share. It is also known as preferred stock. Preference share enjoys two preferential right i.e. (I) dividend at a fixed rate or amount before and dividend to equity shares and (ii) redemption of preference share capital before the redemption of equity share capital at the time of liquidation of the company. However, preference shareholders do not have the right to participate in the management of the company. On other words, preference shareholders do not have the voting right.
Types of preference shares
The major types of preference shares are as follows:
1. Cumulative and non-cumulative preference shares, when unpaid dividends on preference shares are treated as arrears forward to subsequent years, then such preference shares are known as cumulative preference shares. In other words, the preference shares are said to be cumulative preference shares, if there are no profits in any year and the arrears of such dividend is carried forward and paid out of the profit of subsequence years. Preference share is traded as a cumulative one, unless it is started clearly.
Non-cumulative preference shares are shoes preference shares, which have the right to ger fixed dividend out of the profits of current year only. They do not carry the right to receive arrears of dividend. If a company fils to pay dividend in a particular year then that need no to be paid out of the future profits. If no dividend is paid in a particular year, it cannot be carried forward.
2. Redeemable and non-redeemable preference shares: those preference shares, which can be redeemed or repaid after the expiry of a fixed period or after giving the prescribed notice as shares can be redeemed out of profit or out of fresh issue of shares made for the purpose of redemption shares, Which cannot be redeemed at the time of issue of such shares.
Those preference shares, which cannot be redeemed during the flextime of the company, are knows as irredeemable preference shares' he amount of such shares is paid only at the time of liquidation of the company.
3. Participating and non-participating preference shares: if the preference shares have right to participate in any surplus profit of the company after paying the dividend to equity shareholders, in addition to the fixed rate of their dividend, they are called participating preference shares. They also participate in the surplus of assets left after repayment of capital to equity shareholders on the winding up the company.
The preference shares having no right to parcipate on the surplus profit or in any surplus on liquidation of the company are called non-participating preference shares.
4. Convertible and non-convertible preference shares: the preference shares, which can be converted onto equity shares at the option of the holders after period according to the terms and conditions of their issue, are knows as convertible preference shares. The preference shares, which are not convertible into equity shares, are called non-convertible preference shares.
Meaning of share capital
A joint stock company needs capital in order to finance its activities. It raises its capital by issue of shares. The shares. Te memorandum of association states the amount of capital with which the company is to be resisted and the number of shares into which it is to be divided. When total of the capital of a company is divided into shares, then it is called share capital. It constitutes the basis of the capital structure of a company. In other words, the capital collected by a joint stock company for its business operation is known as share capital. It is the total amount of capital collected from its shareholders for achieving the common goal of the company as stated in memorandum of association.
Types of share capital
Share capital of a company can be divided into the following different categories:
Authorized/ registered/ maximum/ nominal capital
The maximum amount of capital, which a company is authorized to raise from the public by the issue of shares, is known as authorized capital. It refers to the amount of capital mentioned in the capital clause of memorandum of association of a company, it is the capital with which a company is resisted; therefore, it is also known as registered capital. Similarly, it is also known as nominal capital, because the actual capital raised is generally less than the authorized capital.
A company cannot issue its shares for more than this amount. But such a limit can be increased from time to time by amending the memorandum itself. For example, it a company is registered with and authorized capital of Rs. 10, 00,000 divided into 100,000 equity shares of Rs. 10 each, and then Rs.10, 00,000 is termed as the authorized capital of the company. It is shown on the liabilities of the balance sheet without adding in the total of the balance sheet.
Issued capital
Generally, a company does not issue its entire authorized capital to the public for subscription. So, issued capital is a part of authorized capital, which is offered to the public for subscription, including shares offered to the vendor for consideration other than cash. The part of authorized capital not offered for subscription to the public is known as un-issued capital. Such capital can be offered to public in future. In the above example, it the company issued only 60,000 equity shares out of 1, 00, 000 equity shares, rs. 6, 00, 000 (i.e., 60, 000 shares @ Rs.10 each) is issued capital of the company and remaining rs. 4, 00, 000 (i.e., 40,000 shares @ Rs. 10 each) will be called un-issued capital, which can be offered to the public in future.
Subscribed capital
The entries issue of capital may not be taken up or subscribed by the public. That part of issued capital, which is subscribed for by the public, is known as subscribed capital. In other words, it is that portion of issued capital, which has been taken up by the public. The balance of issued capital not subscribed for by the public is called the unsubscribed capital. For example, out of the above 60,000 issued equity shares of Rs. 10 each, if only 50,000 equity shares are applied for, the subscribed capital will be Rs. 5, 00,000.
Called up capital
The company may not call the entire par value per share at the time of issued of share. Called up capital is that part of the subscribed capital, which is called by the company to pay on shares, allotted. It is not necessary for the company to call for entire amount on shares subscribed for by the shareholder. The amount, which is not called on subscribed shares, is called uncalled capital. For example, it above company demands only at the rate of Rs.4 per share on 50,000 shares of Rs. 1o per share, the called up capital will be Rs.2, 00,000. The remaining amount Rs. 3, 00,000 will be uncalled capital.
Paid up capital
It is that part of called up capital, which is actually paid by the shareholders. Therefore, it is also known as real capital of the company of the company. Wherever a particular amount is called and a shareholder fails to pay the amount fully or partially, it is known as unpaid calls or calls in arrears. If a shareholder holding 50 shares has not paid Rs. 20 per share then Rs. 1,000 will be calls in arrears. To calculate paid up capital, the amount of calls in arrear is deducted form called up capital.
Paid up capital = called up capital – calls in arrear
Uncalled capital
The portion of capital that has not been called yet is called uncalled capital. It is the portion of the subscribed capital. It is also called reserve capital. This uncalled is callable in future when the company needs additional capital or suffers from financial crisis or at the time of winding up of the company.
Types of preference shares
The major types of preference shares are as follows:
1. Cumulative and non-cumulative preference shares, when unpaid dividends on preference shares are treated as arrears forward to subsequent years, then such preference shares are known as cumulative preference shares. In other words, the preference shares are said to be cumulative preference shares, if there are no profits in any year and the arrears of such dividend is carried forward and paid out of the profit of subsequence years. Preference share is traded as a cumulative one, unless it is started clearly.
Non-cumulative preference shares are shoes preference shares, which have the right to ger fixed dividend out of the profits of current year only. They do not carry the right to receive arrears of dividend. If a company fils to pay dividend in a particular year then that need no to be paid out of the future profits. If no dividend is paid in a particular year, it cannot be carried forward.
2. Redeemable and non-redeemable preference shares: those preference shares, which can be redeemed or repaid after the expiry of a fixed period or after giving the prescribed notice as shares can be redeemed out of profit or out of fresh issue of shares made for the purpose of redemption shares, Which cannot be redeemed at the time of issue of such shares.
Those preference shares, which cannot be redeemed during the flextime of the company, are knows as irredeemable preference shares' he amount of such shares is paid only at the time of liquidation of the company.
3. Participating and non-participating preference shares: if the preference shares have right to participate in any surplus profit of the company after paying the dividend to equity shareholders, in addition to the fixed rate of their dividend, they are called participating preference shares. They also participate in the surplus of assets left after repayment of capital to equity shareholders on the winding up the company.
The preference shares having no right to parcipate on the surplus profit or in any surplus on liquidation of the company are called non-participating preference shares.
4. Convertible and non-convertible preference shares: the preference shares, which can be converted onto equity shares at the option of the holders after period according to the terms and conditions of their issue, are knows as convertible preference shares. The preference shares, which are not convertible into equity shares, are called non-convertible preference shares.
Meaning of share capital
A joint stock company needs capital in order to finance its activities. It raises its capital by issue of shares. The shares. Te memorandum of association states the amount of capital with which the company is to be resisted and the number of shares into which it is to be divided. When total of the capital of a company is divided into shares, then it is called share capital. It constitutes the basis of the capital structure of a company. In other words, the capital collected by a joint stock company for its business operation is known as share capital. It is the total amount of capital collected from its shareholders for achieving the common goal of the company as stated in memorandum of association.
Types of share capital
Share capital of a company can be divided into the following different categories:
Authorized/ registered/ maximum/ nominal capital
The maximum amount of capital, which a company is authorized to raise from the public by the issue of shares, is known as authorized capital. It refers to the amount of capital mentioned in the capital clause of memorandum of association of a company, it is the capital with which a company is resisted; therefore, it is also known as registered capital. Similarly, it is also known as nominal capital, because the actual capital raised is generally less than the authorized capital.
A company cannot issue its shares for more than this amount. But such a limit can be increased from time to time by amending the memorandum itself. For example, it a company is registered with and authorized capital of Rs. 10, 00,000 divided into 100,000 equity shares of Rs. 10 each, and then Rs.10, 00,000 is termed as the authorized capital of the company. It is shown on the liabilities of the balance sheet without adding in the total of the balance sheet.
Issued capital
Generally, a company does not issue its entire authorized capital to the public for subscription. So, issued capital is a part of authorized capital, which is offered to the public for subscription, including shares offered to the vendor for consideration other than cash. The part of authorized capital not offered for subscription to the public is known as un-issued capital. Such capital can be offered to public in future. In the above example, it the company issued only 60,000 equity shares out of 1, 00, 000 equity shares, rs. 6, 00, 000 (i.e., 60, 000 shares @ Rs.10 each) is issued capital of the company and remaining rs. 4, 00, 000 (i.e., 40,000 shares @ Rs. 10 each) will be called un-issued capital, which can be offered to the public in future.
Subscribed capital
The entries issue of capital may not be taken up or subscribed by the public. That part of issued capital, which is subscribed for by the public, is known as subscribed capital. In other words, it is that portion of issued capital, which has been taken up by the public. The balance of issued capital not subscribed for by the public is called the unsubscribed capital. For example, out of the above 60,000 issued equity shares of Rs. 10 each, if only 50,000 equity shares are applied for, the subscribed capital will be Rs. 5, 00,000.
Called up capital
The company may not call the entire par value per share at the time of issued of share. Called up capital is that part of the subscribed capital, which is called by the company to pay on shares, allotted. It is not necessary for the company to call for entire amount on shares subscribed for by the shareholder. The amount, which is not called on subscribed shares, is called uncalled capital. For example, it above company demands only at the rate of Rs.4 per share on 50,000 shares of Rs. 1o per share, the called up capital will be Rs.2, 00,000. The remaining amount Rs. 3, 00,000 will be uncalled capital.
Paid up capital
It is that part of called up capital, which is actually paid by the shareholders. Therefore, it is also known as real capital of the company of the company. Wherever a particular amount is called and a shareholder fails to pay the amount fully or partially, it is known as unpaid calls or calls in arrears. If a shareholder holding 50 shares has not paid Rs. 20 per share then Rs. 1,000 will be calls in arrears. To calculate paid up capital, the amount of calls in arrear is deducted form called up capital.
Paid up capital = called up capital – calls in arrear
Uncalled capital
The portion of capital that has not been called yet is called uncalled capital. It is the portion of the subscribed capital. It is also called reserve capital. This uncalled is callable in future when the company needs additional capital or suffers from financial crisis or at the time of winding up of the company.
Thanks for sharing this article post that gives one of the best information regarding preference share and equity shares. If you are willing to find out about shares then here you can view the best information for shares because there are two types of shares one Equity shares and second preference shares. For more details follow given on the link: https://rta.saginfotech.com/blog/differences-between-equity-shares-and-preference-shares/
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ReplyDeleteShare Capital is used to fund new projects, such as new factories, roads, bridges etc.. It also helps finance future growth because it allows for more rapid expansion than if all the funds were put into production now instead of waiting until later years when demand increases dramatically due to economic growth or other factors such as population increase or technological advancement.>
ReplyDeleteShare capital refers to the amount of money that has been invested in a company by its shareholders. This is the money that the company can use to finance its operations and growth.
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