Page 274 - DMGT407Corporate and Business Laws

Unit 11: Prospectus, Shares and Share Capital

9. The Companies Act, 1956 does not stipulate any conditions or restrictions regarding the Notes
issue of shares by a company at a………………….

11.4 Share Capital

It means the capital of a company, or the figure in terms of so many rupees divided into shares
of a fixed amount, or the money raised by the issue of shares by a company.

11.4.1 Meaning of Share Capital

A public company and its subsidiary can issue only two kinds of shares, viz., preference and
equity. Therefore, such a company can have only two kinds of share capital by issue of preference
shares and equity shares, viz., preference share capital and equity share capital. The expression
“Preference Share Capital” and “Equity Share Capital” are used in the following different senses:
Nominal, authorised or registered capital. This is the sum stated in the memorandum as the
share capital of a company with which it is proposed to be registered. This is the maximum
amount of capital which it is authorised to raise by issuing shares and upon which it pays stamp
duty. As we shall see later, when the original amount of the authorised capital is exhausted by
issue of shares, it can be increased by passing an ordinary resolution.
Issued capital. It is that part of the authorised capital which the company has issued for
subscription. The amount of issued capital is either equal to or less than the authorised capital.
Subscribed capital. It is that portion of the issued capital which has been subscribed for by the
purchasers of the company’s shares. The amount of subscribed capital is either equal to or less
than the issued capital.
Called-up capital. The company may not call up full amount of the face value of the shares.
Thus, the called-up capital represents the total amount called-up on the shares subscribed. The
total amount of called-up capital can be either equal to or less than the subscribed capital.
Thus, uncalled capital represents the total amount not called up on shares subscribed and the
shareholders continue to be liable to pay the amounts as and when called. However, the company
may reserve all or part of the uncalled capital, which can then be called in the event of the
company being wound up. For this purpose, a special resolution is required to be passed and
then it is known as Reserve Capital or Reserve Liability (s.99).

Paid-up capital. Paid-up capital is the amount of money paid-up on the shares subscribed.

11.4.2 Alteration of Share Capital

Section 94 provides that, if the articles authorise, a company limited by share capital may, by an
ordinary resolution passed in general meeting, alter the conditions of its memorandum in
regard to capital so as:
1. to increase its authorised share capital by such amount as it thinks expedient by issuing
fresh shares;
2. to consolidate and divide all or any of its share capital into shares of larger amount than
its existing shares;

3. to convert all or any of its fully paid-up shares into stock and reconvert the stock into fully
paid-up shares of any denomination;
4. to sub-divide its shares, or any of them, into shares of smaller amount than fixed by the
memorandum, but the proportion paid and unpaid on each share must remain the same;

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