What Are the Types and Features of Share Capital?

Did you know that shared capital can be a great way to raise money for your business? Shared capital is the ownership of a company or enterprise by two or more individuals. This arrangement is often seen in family businesses, where siblings or other relatives own shares in the business.

Share capital refers to the portion of a company’s total capital that its shareholders own. This includes both common and preferred shares. Shareholders’ equity is the portion of the company’s total assets owned by the shareholders. It represents their claim on the company’s assets and earnings.

Characteristics of Share Capital

1. Share capital refers to the portion of a company’s equity owned by its shareholders
2. Shareholders are typically entitled to a share of the company’s profits, which may be distributed as dividends
3. Shareholders may also have certain voting rights, depending on their shares
4. Shared capital may also be called equity or ownership interest
5. Shareholders’ equity is the portion of a company’s assets owned by its shareholders
6. Equity is typically comprised of both paid-in capital and retained earnings
7. Paid-in capital refers to the funds invested in a company by its shareholders
8. Retained earnings are the profits a company has earned and reinvested into the business
9. Equity may be referred to as ownership interest or net worth
10. Shareholders’ equity is important in determining a company’s value and ability to raise capital.

Reasons for Issuing Share Capital

There are several reasons why companies may choose to issue share capital. One reason is to raise additional funds for the company. This can be used to finance new projects, expand the business, or provide working capital.

Another reason is to give existing shareholders a chance to increase their ownership stake in the company. This can be done by offering them the opportunity to purchase additional shares or by issuing new shares that are then offered to existing shareholders. This can help to align the interests of shareholders and management and can also help to ensure that the company’s ownership is more widely dispersed.

Finally, issuing shared capital can also be a way to reward employees or other key stakeholders for their contributions to the company. This can help to incentivize them to continue working hard and contributing to the company’s success.

Each of these reasons can be a valid justification for issuing shared capital. But, ultimately, whether or not to do so will come down to what is best for the company and its shareholders. If done correctly, issuing shared capital can be a great way to raise additional funds, give existing shareholders a chance to increase their ownership stake, or reward key employees or stakeholders. However, it is important to ensure that all potential risks and drawbacks are properly considered before making any decisions.

Types of Shared Capital

The primary types of shared capital are mentioned below:

Paid up share capital: 

This is the amount of money that shareholders have paid into the company. So, for example, if a company has 100 shares with a par value of ₹1 each, and shareholders have paid ₹50 per share, then the paid-up share capital would be ₹5,000.

Called up share capital: 

This is the number of money shareholders is liable to pay if the company is wound up. For example, if a company has 100 shares with a par value of ₹1 each, and shareholders have paid ₹50 per share, the called-up share capital would be ₹10,000.

Issued capital: 

This is the amount of money raised by the company through the issue of new shares. For example, if a company has 100 shares with a par value of ₹1 each, and shareholders have paid ₹50 per share, then the issued capital would be ₹100

Authorised/Registered/Nominal share capital: 

This is the maximum amount of money the company is allowed to raise through the issue of new shares. For example, if a company has 100 shares with a par value of ₹1 each, and shareholders have paid $50 per share, then the authorised share capital would be ₹10,000.

Subscribed capital: 

This is the amount shareholders have committed to pay for new shares. For example, if a company has 100 shares with a par value of ₹1 each, and shareholders have paid ₹50 per share, then the subscribed capital would be ₹5,000

Reserve capital: 

This is the amount the company has set aside for future use. For example, if a company has 100 shares with a par value of ₹1 each, and shareholders have paid ₹50 per share, then the reserve capital would be ₹5,000.

Demerits of shared capital

Shared capital refers to the ownership of a company by two or more individuals. This type of business ownership can have several disadvantages, including the following:

1. 1. Limited Liability – One of the biggest advantages of shared capital is its biggest disadvantages. While limited liability protects the owners from being held personally liable for the business’s debts, it also means that they may have difficulty accessing capital
2. 2. Difficult to Transfer – Shared ownership can make it difficult to transfer business ownership. This can be a problem if one of the owners wants to sell their interest in the company
3. 3. Capital Gains Taxes – Shared ownership can also result in higher capital gains taxes when the business is sold. This is because the sale of a minority interest in a company is subject to different tax rules than the sale of a majority interest
4. Complexity – Shared ownership can make it more difficult to manage the affairs of the business. This is because there may be multiple owners with conflicting interests
5. Disputes – Shared ownership can also lead to disputes between the owners. This is because each owner may have a different vision for the future of the business.

Conclusion

Shared capital is an important aspect of business in India. It allows businesses to pool resources and share risks. Vakilsearch is one of the best ways to find out about shared capital opportunities in India. This service provides access to a wide range of businesses and investors interested in shared capital arrangements. This makes it an ideal way for businesses to raise capital and investors to find new opportunities. Vakilsearch is a valuable tool for both businesses and investors alike.

Read also;

• What is Meant by Authorized Share Capital?
• Easy Ways to Understand the Authorized Share Capital