

Types of Share Capital Explained with Examples
Share capital is the money a company raises by issuing shares to investors. Understanding share capital is crucial for students of accounting, financial management, and business studies. It appears in company balance sheets and is important in both school and competitive exams. Share capital also provides practical knowledge for real-world business scenarios.
Type of Share Capital | Meaning | Example |
---|---|---|
Authorised Capital | Maximum capital a company can issue as per Memorandum of Association | ₹20,00,000 |
Issued Capital | Part of authorised capital actually offered to investors | ₹15,00,000 |
Subscribed Capital | Portion of issued capital subscribed by public | ₹12,00,000 |
Paid-up Capital | Amount actually paid by shareholders | ₹11,00,000 |
What is Share Capital?
Share capital is the total fund raised by a company through the issue of shares to shareholders. It represents the initial and ongoing investment from owners and is reported on the liabilities side of the balance sheet. Share capital is a core concept in company accounts and company law.
Types of Share Capital
Share capital can be classified into different categories for accounting and legal purposes. These categories help students understand company structures and are commonly tested in exams, including MCQs.
- Authorised (Nominal) Capital
- Issued Capital
- Subscribed Capital
- Called-up Capital
- Paid-up Capital
Explanation of Types
- Authorised Capital: The maximum amount a company can issue, stated in its Memorandum of Association.
- Issued Capital: The part of authorised capital offered for subscription.
- Subscribed Capital: The part actually taken up by investors.
- Paid-up Capital: The amount shareholders have paid on shares issued to them.
Calculation of Share Capital
To calculate share capital, multiply the number of shares issued by the face (par) value per share. This calculation is important for accounting entries and balance sheet preparation. It is frequently included as a short question or MCQ in exams.
- Share Capital Formula: Number of Shares Issued × Face Value per Share
Share Capital Example
If a company issues 1,00,000 shares at ₹10 each, its share capital will be 1,00,000 × ₹10 = ₹10,00,000. This amount will be shown under 'Equity and Liabilities' on the balance sheet.
Share Capital in Financial Statements
Share capital appears on the liabilities side of the company’s balance sheet under 'Shareholder’s Funds.' It represents the owners’ claim in the company. Companies must disclose details of authorised, issued, and paid-up capital in the notes to accounts, as per the Companies Act 2013. This clarity is essential for both company accounts and making informed investment or business decisions.
Legal and Accounting Aspects of Share Capital
The structure and rules regarding share capital are defined by company law, including the Companies Act 2013 in India. Proper accounting for issue of shares, forfeiture, and reissue is required. Changes in share capital, whether increase or decrease, must be approved by shareholders and reported as mandated.
Difference Between Share Capital and Equity
While 'share capital' is the money paid or received for shares issued, 'equity' usually refers to share capital plus other reserves and retained earnings. Both reflect ownership but differ in coverage. Understanding this difference is important for making sense of company financial statements.
Practical Significance and Exam Relevance
Questions on share capital frequently appear in commerce board exams and competitive tests. Knowing definitions, types, calculation, and their treatment is key for scoring well. In real business, managers, investors, and accountants must understand share capital to make effective funding and compliance decisions.
Related Concepts and Further Study
- Types of Share Capital
- Issue, Forfeiture, and Reissue of Shares
- Equity Shares and Preference Shares
- Balance Sheet
- Financial Statements of a Company
- Companies Act 2013
At Vedantu, we aim to make commerce concepts like share capital simple to understand for exam preparation and business use. Mastering share capital helps in both academic success and real-world decision-making.
In summary, share capital is the backbone of a company’s finances, signifying funds contributed by shareholders. Knowing its types, calculation method, legal provisions, and presentation equips students for exams and enriches practical business knowledge.
FAQs on Share Capital of a Company
1. What is share capital?
Share capital represents the funds a company raises by issuing shares to investors. It's a crucial part of company finance, displayed on the balance sheet, and key for understanding company accounts and equity.
2. What are the types of share capital?
Share capital is categorized into: Authorized capital (maximum allowed to issue), Issued capital (shares offered to the public), Subscribed capital (shares accepted by investors), and Paid-up capital (amount received from investors). Understanding these distinctions is crucial for accounting and company law exams.
3. How do you calculate share capital?
The basic share capital formula is: Number of shares issued x Face value per share = Share Capital. For example, if 10,000 shares are issued at ₹10 each, the share capital is ₹100,000. This calculation is fundamental to company accounts and financial statement analysis.
4. Who owns the share capital of a company?
The shareholders own the share capital, proportionally to their shareholding. They are the company's owners and have rights related to their investment, dividends and voting rights. This is a basic concept in company law and financial management.
5. What is an example of share capital?
A company issues 100,000 shares at ₹10 each; its share capital is ₹1,000,000. This simple example clarifies the relationship between the number of shares, their face value, and the total share capital of a company. This illustrates a key concept in accounting and company finance.
6. What is authorised capital of a company?
Authorized capital is the maximum amount of share capital a company can issue as per its memorandum of association. It's a legal limit defined by company law. This concept is important for understanding the legal framework around a company’s financing.
7. What is the difference between share capital and equity?
Share capital represents the funds raised directly from shareholders, while equity includes share capital plus reserves and surplus. Equity is a broader measure of shareholder investment and company net worth. Understanding this difference is important for financial statement analysis.
8. Is share capital an asset or a liability?
Share capital is a liability shown on the liabilities side of the balance sheet. It represents funds the company owes to its shareholders. This is a fundamental concept in accounting and financial reporting.
9. How is share capital shown in a company's balance sheet?
Share capital is shown in the equity and liabilities section of the balance sheet. It's presented alongside other equity components, like reserves and surplus, and is usually broken down by share type. This clarifies the capital structure of the company.
10. How does share capital impact company valuation?
Share capital forms the foundation of ownership, but it's not the sole determinant of company valuation or share price. Other factors, such as profitability, assets, and market conditions, also play significant roles. This concept is important for understanding business valuation and investment decisions.
11. What happens to share capital when shares are forfeited?
When shares are forfeited, the paid-up capital is reduced. The amount received from the shareholder before forfeiture becomes part of the capital reserve. This aspect is important in understanding share capital adjustments and accounting treatments.
12. Share capital of a company may be reduced by?
Share capital can be reduced through a share buyback, or other legally approved methods. This process requires shareholder approval and compliance with company law regulations. Understanding this process is crucial for financial management.

















