Ashish Narayan

ReLearners

Company

Accounts
BBA Semester 3
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Chapter 1

Introduction to Share Capital

What is Capital?
In accounting, Capital means anything brought by the owner into the business of
another kind.

Types of Capital
1. Authorised or Nominal Capital
2. Issued and Unissued Capital
3. Subscribed or Unsubscribed Capital
4. Called-up Capital
5. Uncalled Capital
6. Reserved Capital
7. Paid-up Capital
8. Unpaid-up Capital/Call in Arrears

What is Share?
A share is the smallest unit that a company can be divided into. When a
business wants to raise capital to expand, it offers a portion of its ownership in
the form of shares, to investors. The founders decide what percentage of the
shares to keep among themselves, and how many to offer investors.
To offer shares publicly, the company needs to be listed on a stock exchange like
the Johannesburg Stock Exchange (JSE).

Share Capital
The term "share capital" refers to the amount of money the owners of a company
have invested in the business as represented by common and/or preferred shares.
Categories of Share Capital
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Categories of Share Capital

Types of Shares
Shares of a company may be called
1. Equity Shares, and
2. Preference Shares.

1. Equity Shares
Equity Shares are issued to the General Public and are non-redeemable in nature.
Investors in such shares hold the right to vote., share profits and claim the assets
of a company. Equity Shares are long-term financing sources for a company.

Characteristics of Equity Shares

➔ Also known as Ordinary shares.

➔ Represent the owner's capital of the company.
➔ Can not be redeemed during the lifetime of the company.
➔ Are paid dividends after payment to preference shareholders.
➔ Riskier as compared to preference shares.

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2. Preference Shares
Preference Shares are those which have two preferences over Equity Shares.
➔ Preference as to Payment of Dividend and
➔ Preference as to Return of Capital in the event of winding up of a company.
Preference Shares are a long-term source of finance for a company. They have
elements of both equity shares and debt.

Features as Equity

➔ Dividend from profit after tax

➔ Management discretion over payment
➔ No fixed maturity

Features as Debt

➔ Fixed dividend
➔ No share in earning
➔ Fixed maturity
➔ No voting rights
➔ Preference over stocks

Equity v/s Preference Shares

Bases Of Difference Preference Shares Equity Shares

Right to Dividend Dividend is paid on The dividend is paid on

Preference shares before the Equity shares after it
it is paid on the Equity is paid on the preference
shares. shares.

Rate of Dividend Rate of dividend may be The Rate of dividend is

fixed on these shares. proposed by the Board of
Directors each year.

Redemption Preference shares are A company may buy

redeemed on the due back its equity shares.
date.

Voting Rights Preference shareholders Equity shareholders have

have voting rights only in voting rights in all
special circumstances. circumstances.

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Bases Of Difference Preference Shares Equity Shares

Requirement for A new company cannot A new company can be

Formation be formed only with formed only with equity
preference shares. shares.

Types There are 8 types of There is no such type of

preference shares. equity shares, however,
sweat equity shares are
covered under this
category.

ReLearners | Ashish Narayan