Maharashtra Board Class 12 Secretarial Practice Chapter 3 Issue Of Shares PDF Download

Issue Of Shares

Classification Of Share Capital

Share capital refers to the capital made up of Equity Shares and Preference Shares. Usually, in share capital, the proportion of Equity shares is more than Preference shares.

Share Capital can be classified as:

A. Authorised Or Nominal Or Registered Capital

Authorised Capital is the maximum capital authorised by Memorandum of Association that a company can raise by issuing shares.

It is also called as Registered Capital as it is mentioned in the capital clause of Memorandum of Association and the company pays stamp duty on this amount at the time of incorporation. Authorised Capital is calculated considering the need of capital of a company at present and in future.

Authorised Capital is also called as Nominal Capital as usually a company never issues the entire Authorised Capital.

Example: 'M' Ltd. Company has Authorised Capital of \(₹ 10,00,000\) which can be divided into 1,00,000 Equity shares having a face value of \(₹ 10\) each.

A company can increase its Authorised capital by altering its Memorandum of Association.

Teacher's Note

Authorised capital is like the maximum money a company can collect from shares. Think of it like your father allowing you maximum ₹ 100 pocket money, but you take only ₹ 50.

Exam Trick

Remember: Authorised = Maximum = Not all issued. Like your school says we can teach up to 100 students, but we have only 80 students now.

Points to Remember

Authorised capital is mentioned in Memorandum of Association.

Company never issues all authorised capital.

It is the maximum amount a company can raise.

B. Issued And Unissued Capital

Issued Capital is that part of Authorised Capital which is offered by the company to prospective investors for subscription. Thus, it is the shares that the company is offering to the public to buy.

The balance part of Authorised capital not offered to the public is called as 'Unissued Capital'. In future, the company can issue shares from the unissued capital.

The issued capital of a company may be equal to or less than the Authorised Capital. Example: 'M' Ltd. Company can have Issued Capital of \(₹ 4,00,000\) divided into 40,000 Equity shares at face value of \(₹ 10\) each and the unissued capital will be \(₹ 6,00,000\) divided into 60,000 Equity shares of \(₹ 10\) each.

Teacher's Note

Issued capital means the shares the company is actually selling to the public. Unissued capital is kept for future needs when company wants to raise more money later.

Exam Trick

Remember: Issued = Selling Now. Unissued = Keeping for Future. Like you having 10 notebooks but selling only 6 in the shop now.

Points to Remember

Issued capital is part of authorised capital offered to public.

Unissued capital can be used in future for raising funds.

Issued capital is always equal to or less than authorised capital.

C. Subscribed And Unsubscribed Capital

Subscribed capital is that part of Issued-capital which has been subscribed or taken up (bought) by investors (subscriber). The public may or may not subscribe for the entire Issued capital. Hence, that part of the Issued capital not subscribed by the investors is called as 'unsubscribed capital'. Thus, the subscribed capital may be equal to or less than the Issued capital.

Example: If 'M' Ltd. Company has Issued capital of \(₹ 4,00,000\) i.e. has issued 40,000 Equity shares, then the company's subscribed capital can be \(₹ 3,00,000\) divided into 30,000 Equity shares of \(₹ 10\) each. Hence, the unsubscribed capital will be \(₹ 1,00,000\) divided into 10,000 Equity shares of \(₹ 10\) each.

Teacher's Note

Subscribed capital means people have actually bought those shares. If company offers 100 shares but people buy only 80, then 80 are subscribed. This is like a restaurant offering 50 meals but only 35 people buy them.

Exam Trick

Remember: Subscribed = People Bought. Unsubscribed = People Did Not Buy. Like you selling 60 out of 100 notebooks you offered for sale.

Points to Remember

Subscribed capital is that part of issued capital which people have bought.

Unsubscribed capital means people did not buy those shares.

Subscribed capital is always equal to or less than issued capital.

D. Called-up Capital, Uncalled Capital And Reserve Capital

At the time of Issue, full value of the shares is usually not demanded by the company. Company collects the full value of shares in instalments as per its requirement of funds.

Each Instalment is called as 'calls'. Called-up capital is that part of subscribed capital which a company has 'called' or demanded to be paid by the shareholders. The balance capital which is not demanded from the shareholders is called as uncalled capital.

Reserve Capital is a part of uncalled capital. A company can decide to keep aside a part of its uncalled capital to be called up only at the time of winding up of a company to meet its financial requirements.

Example: 'M' Ltd. Company may have called up capital of \(₹ 1,50,000\) i.e. 30,000 Equity shares of face value of \(₹ 10\) each out of which \(₹ 5\) per share has been called up/demanded by the company.

If the company decides to keep Re. 1 per share as capital to be collected at the time of the winding up, the Reserve Capital will be \(₹ 30,000\) i.e. 30,000 equity shares of \(₹ 10\) each where Re. 1 per share is kept as Reserve Capital.

Uncalled capital will be \(₹ 1,20,000\) i.e. 30,000 Equity shares where \(₹ 4\) per share which will be called up in future.

Teacher's Note

Called-up capital is money the company has asked from shareholders. Like when your school asks for fees in three parts - first part in June, second in September. Reserve capital is kept only for emergency when company closes down.

Exam Trick

Remember: Called = Demanded By Company. Uncalled = Not Yet Demanded. Reserve = Only For Closing Time. Like your teacher collecting fees in parts, not all at once.

Points to Remember

Called-up capital is the amount demanded by company from shareholders.

Uncalled capital is not yet demanded by the company.

Reserve capital is used only when company winds up.

E. Paidup Capital And Calls In Arrears

Paid up capital is the total amount of money actually paid up by the shareholders when the company has called up or demanded them to pay.

The amount not paid up by the shareholders is called up as Calls in Arrears or unpaid calls.

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