Different Types of Share Capital

Every company needs money to start and grow. This money can come from the owners, the public, or other investors. One common way companies raise money is by issuing shares. The total money raised through shares is called share capital.

But not all share capital is the same. There are different types, each with its own meaning and purpose. Some are used when the company is just starting, some when it wants to grow, and some when it needs to reward investors.

For a beginner, terms like “authorized capital” or “paid-up capital” may sound difficult. But don’t worry – in this blog, we will explain different types of share capital in very simple words.

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What is Share Capital?

Share capital is the money a company gets by selling its shares. It is the ownership money of the company. If you buy a share, you become part owner of the company.

Authorized Share Capital

This is the maximum amount of share capital a company is allowed to raise as written in its legal papers (Memorandum of Association).

Example: If a company’s authorized share capital is ₹10 crore, it cannot issue shares worth more than ₹10 crore unless it changes its legal papers.

Issued Share Capital

Out of the authorized capital, the company may decide to issue only a part. That part is called issued capital.

Example: If the company’s authorized capital is ₹10 crore but it issues shares worth ₹6 crore, then issued capital is ₹6 crore.

Subscribed Share Capital

When the company issues shares, people may not buy all of them. The portion that investors actually agree to buy is called subscribed capital.

Example: If the company issues ₹6 crore shares, but investors buy only ₹5 crore, then subscribed capital is ₹5 crore.

Also read: Difference between Issued Vs Subscribed Share.

Called-Up Share Capital

Sometimes companies don’t ask for full payment of shares at once. They may call for money in parts. The amount that the company has asked (called) from shareholders is called-up capital.

Example: If you bought shares worth ₹1,000 but the company has asked only for ₹700 now, then ₹700 is called-up capital.

Paid-Up Share Capital

Out of the called-up capital, the amount that shareholders have actually paid is called paid-up capital.

Example: If a company asked ₹700 but you paid only ₹600, then ₹600 is paid-up capital.

Uncalled Share Capital

This is the part of subscribed capital that the company has not yet asked from shareholders.

Example: From ₹1,000 share, if the company asked only ₹700, then ₹300 is uncalled capital.

Reserve Share Capital

This is a special type. The company may keep a part of its capital as reserve, which it will call only if the company closes (winding up). This is for the safety of creditors.

Bonus Share Capital

Sometimes companies give free shares to existing shareholders from profits. These free shares are called bonus shares, and they become part of share capital.

Rights Share Capital

If a company needs more money, it may give existing shareholders the right to buy extra shares before anyone else. This is called a rights issue, and the money from it becomes rights share capital.

Benefits of Knowing Share Capital Types

• Helps you understand how companies raise money
• Useful for students learning business basics
• Important for investors to know how much money a company really has
• Shows the financial strength and flexibility of a company