{"id":55051,"date":"2023-04-13T15:55:05","date_gmt":"2023-04-13T10:25:05","guid":{"rendered":"https:\/\/corpbiz.io\/learning\/?p=55051"},"modified":"2023-04-13T15:55:07","modified_gmt":"2023-04-13T10:25:07","slug":"different-types-of-share-capitals-and-its-importance","status":"publish","type":"post","link":"https:\/\/corpbiz.io\/learning\/different-types-of-share-capitals-and-its-importance\/","title":{"rendered":"What Are The Different Types Of Share Capitals And Its Importance?"},"content":{"rendered":"\n<p>It is always believed that share capital is the most convenient way\nto increase one\u2019s money. But let\u2019s just understand what the meaning of share\ncapital is. Share Capital is the possession of the company or any organization\nby two or more than two individuals. In this article we shall go through the\ndetails about the concept of Share Capital, it\u2019s Importance for issuing share\ncapital in a company and the types of share capital.<\/p>\n\n\n\n<div id=\"ez-toc-container\" class=\"ez-toc-v2_0_82_2 counter-hierarchy ez-toc-counter ez-toc-grey ez-toc-container-direction\">\n<div class=\"ez-toc-title-container\">\n<p class=\"ez-toc-title ez-toc-toggle\" style=\"cursor:pointer\">Page Contents<\/p>\n<span class=\"ez-toc-title-toggle\"><a href=\"#\" class=\"ez-toc-pull-right ez-toc-btn ez-toc-btn-xs ez-toc-btn-default ez-toc-toggle\" aria-label=\"Toggle Table of Content\"><span class=\"ez-toc-js-icon-con\"><span class=\"\"><span class=\"eztoc-hide\" style=\"display:none;\">Toggle<\/span><span class=\"ez-toc-icon-toggle-span\"><svg style=\"fill: #999;color:#999\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" class=\"list-377408\" width=\"20px\" height=\"20px\" viewBox=\"0 0 24 24\" fill=\"none\"><path d=\"M6 6H4v2h2V6zm14 0H8v2h12V6zM4 11h2v2H4v-2zm16 0H8v2h12v-2zM4 16h2v2H4v-2zm16 0H8v2h12v-2z\" fill=\"currentColor\"><\/path><\/svg><svg style=\"fill: #999;color:#999\" class=\"arrow-unsorted-368013\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" width=\"10px\" height=\"10px\" viewBox=\"0 0 24 24\" version=\"1.2\" baseProfile=\"tiny\"><path d=\"M18.2 9.3l-6.2-6.3-6.2 6.3c-.2.2-.3.4-.3.7s.1.5.3.7c.2.2.4.3.7.3h11c.3 0 .5-.1.7-.3.2-.2.3-.5.3-.7s-.1-.5-.3-.7zM5.8 14.7l6.2 6.3 6.2-6.3c.2-.2.3-.5.3-.7s-.1-.5-.3-.7c-.2-.2-.4-.3-.7-.3h-11c-.3 0-.5.1-.7.3-.2.2-.3.5-.3.7s.1.5.3.7z\"\/><\/svg><\/span><\/span><\/span><\/a><\/span><\/div>\n<nav><ul class='ez-toc-list ez-toc-list-level-1 eztoc-toggle-hide-by-default' ><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-1\" href=\"https:\/\/corpbiz.io\/learning\/different-types-of-share-capitals-and-its-importance\/#Meaning_of_Share_Capital_and_its_Characteristics\" >Meaning of Share Capital and its Characteristics<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-2\" href=\"https:\/\/corpbiz.io\/learning\/different-types-of-share-capitals-and-its-importance\/#What_Is_The_Importance_Of_Issuance_Of_The_Share_Capital_In_A_Company\" >What Is The Importance Of Issuance Of The Share\nCapital In A Company?<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-3\" href=\"https:\/\/corpbiz.io\/learning\/different-types-of-share-capitals-and-its-importance\/#What_Are_The_Types_Of_Share_Capital\" >What Are The Types Of Share Capital?<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-4\" href=\"https:\/\/corpbiz.io\/learning\/different-types-of-share-capitals-and-its-importance\/#Advantages_and_Disadvantages_of_the_Share_Capital\" >Advantages and\nDisadvantages of the Share Capital<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-5\" href=\"https:\/\/corpbiz.io\/learning\/different-types-of-share-capitals-and-its-importance\/#Conclusion\" >Conclusion<\/a><\/li><\/ul><\/nav><\/div>\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Meaning_of_Share_Capital_and_its_Characteristics\"><\/span>Meaning of Share Capital and its Characteristics<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p><strong><a href=\"https:\/\/corpbiz.io\/change-in-share-capital\">Share capital<\/a><\/strong> refers to the portion of a company&#8217;s equity that has been raised through the sale of shares to investors or shareholders. This is the amount of money that a company has received from issuing its shares to the public or private investors.<\/p>\n\n\n\n<p><em>The following are some of\nthe characteristics of share capital:<\/em><\/p>\n\n\n\n<ul><li><strong>Ownership<\/strong>: Share capital represents the\nownership interest of shareholders in a company. Shareholders own a\nproportional part of the company in accordance with the number of shares they\nhold.<\/li><li><strong>Fixed Amount<\/strong>: The share capital of a\ncompany is a fixed amount that is specified in the company&#8217;s Articles of\nAssociation. This amount does not change unless the company goes through a\nprocess of issuing additional shares or repurchasing existing shares.<\/li><li><strong>Perpetual Existence<\/strong>: The share capital\nof a company is perpetual in nature. It remains as a permanent source of funds\nfor the company unless the company chooses to return the funds to the\nshareholders through dividends or buybacks.<\/li><li><strong>Limited Liability<\/strong>: Shareholders have\nlimited liability for the debts and obligations of the company. This means that\ntheir liability is limited to the amount of share capital they have invested in\nthe company.<\/li><li><strong>Dividend Payments<\/strong>: Shareholders are\nentitled to receive dividend payments from the company. Dividends are payments\nmade out of the profits of the company to its shareholders, and the amount of\ndividend paid is usually proportional to the number of shares held by each\nshareholder.<\/li><li><strong>Transferability<\/strong>: Shareholders have the\nright to transfer their shares to others subject to certain restrictions as\nmentioned in the company&#8217;s Articles of Association. The transfer of shares\ninvolves a change in ownership of a portion of the company.<\/li><\/ul>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"What_Is_The_Importance_Of_Issuance_Of_The_Share_Capital_In_A_Company\"><\/span>What Is The Importance Of Issuance Of The Share\nCapital In A Company?<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>Issuing share capital is one of the primary ways for a company to\nraise funds from investors. Share capital refers to the money that a company\nraises by issuing shares to the public or private investors. These shares\nrepresent ownership in the company and give the shareholders the right to vote\non important decisions such as the election of the board of directors or any\nmajor changes in the company&#8217;s operations.<\/p>\n\n\n\n<p><strong>There Are Several Reasons\nWhy A Company May Choose To Issue Share Capital:<\/strong><\/p>\n\n\n\n<ul><li><strong>Fundraising<\/strong>: Issuing share capital is a\nway for a company to raise funds for its business operations. By selling shares\nto investors, the company can generate significant capital without incurring\ndebt.<\/li><li><strong>Expansion<\/strong>: Share capital can be used to\nfund the expansion of a company&#8217;s operations. This may include opening new\nlocations, developing new products or services, or acquiring other companies.<\/li><li><strong>Reduce Debt<\/strong>: By issuing share capital, a\ncompany can use the funds to pay off existing debt, thereby reducing its\ninterest payments and improving its financial position.<\/li><li><strong>Enhance Company Valuation<\/strong>: The value of\na company is determined by the market value of its shares. By issuing shares\nand increasing the number of shareholders, a company can increase its market\nvalue and enhance its attractiveness to potential investors.<\/li><li><strong>Incentivize Employees<\/strong>: Companies can\nissue shares to their employees as a form of compensation or incentive. This\ncan align the interests of the employees with those of the company and motivate\nthem to work towards the company&#8217;s success.<\/li><\/ul>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"What_Are_The_Types_Of_Share_Capital\"><\/span>What Are The Types Of Share Capital?<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>Share capital refers to the total amount of money raised by a company through the issuance of shares to investors. Shares represent ownership in a company and entitle shareholders to a portion of the company&#8217;s profits and assets. Following are the different types of share capital:<\/p>\n\n\n\n<figure class=\"wp-block-image\"><img decoding=\"async\" width=\"1024\" height=\"495\" src=\"https:\/\/corpbiz.io\/learning\/wp-content\/uploads\/2023\/04\/image-19-1024x495.png\" alt=\"What Are The Types Of Share Capital?\" class=\"wp-image-55053\" srcset=\"https:\/\/corpbiz.io\/learning\/wp-content\/uploads\/2023\/04\/image-19-1024x495.png 1024w, https:\/\/corpbiz.io\/learning\/wp-content\/uploads\/2023\/04\/image-19-300x145.png 300w, https:\/\/corpbiz.io\/learning\/wp-content\/uploads\/2023\/04\/image-19-768x371.png 768w, https:\/\/corpbiz.io\/learning\/wp-content\/uploads\/2023\/04\/image-19.png 1087w\" sizes=\"(max-width: 1024px) 100vw, 1024px\" \/><\/figure>\n\n\n\n<p><em>Share Capital is classified\ninto two broad main divisions, which is mentioned below:<\/em><\/p>\n\n\n\n<ul><li><strong>Equity Share Capital<\/strong><\/li><li><strong>Preference Share Capital<\/strong><\/li><\/ul>\n\n\n\n<p>Let&#8217;s take a closer look at the different types of share capital:<\/p>\n\n\n\n<ul><li><strong>Equity\nShare Capital<\/strong><\/li><\/ul>\n\n\n\n<p>Also known as ordinary shares, equity share capital represents the\nownership stake of shareholders in a company. Equity shareholders are entitled\nto participate in the company&#8217;s profits through dividends and have the right to\nvote on company matters such as the election of the board of directors.\nHowever, equity shareholders have the lowest priority when it comes to\nrepayment in the event of company liquidation or bankruptcy.<\/p>\n\n\n\n<p><em>Equity shares may be\nfurther classified into two categories:<\/em><\/p>\n\n\n\n<p>i) <strong>Authorized Share Capital<\/strong>: This is the maximum amount of share\ncapital that a company is authorized to issue as per its memorandum of\nassociation.<\/p>\n\n\n\n<p><strong><em>Issued Share Capital +\nUnissued Share Capital = Authorized Share Capital<\/em><\/strong><\/p>\n\n\n\n<p>ii) <strong>Issued Share Capital<\/strong>: This is the portion of the authorized share\ncapital that has actually been issued to shareholders.<\/p>\n\n\n\n<p><strong><em>Subscribed Share Capital + Unsubscribed\nShare Capital = Issued Share Capital<\/em><\/strong><\/p>\n\n\n\n<ul><li><strong>Preference Share Capital:<\/strong><\/li><\/ul>\n\n\n\n<p>Preference shares, also known as preferred shares, represent a class\nof shares that have certain preferences over equity shares in terms of dividend\npayments and repayment of capital in case of liquidation or bankruptcy. Unlike\nequity shareholders, preference shareholders do not have voting rights in the\ncompany.<\/p>\n\n\n\n<p><strong><em>Preference shares can be further classified into two categories:<\/em><\/strong><\/p>\n\n\n\n<p>i) <strong>Cumulative Preference Shares<\/strong>: These shares have the right to\nreceive arrears of dividend in case the company is unable to pay dividends in\nany year.<\/p>\n\n\n\n<p>ii) <strong>Non-Cumulative Preference Shares<\/strong>: These shares do not have the\nright to receive arrears of dividend in case the company is unable to pay\ndividends in any year.<\/p>\n\n\n\n<p>In addition to these two main types of share capital, some companies\nmay also issue other types of shares, such as redeemable shares or convertible\nshares. Redeemable shares can be redeemed by the company at a fixed date or at\nthe option of the shareholder, while convertible shares can be converted into\nanother class of shares or into debt instruments.<\/p>\n\n\n\n<p><strong>There Are Different Types\nOf Share Capital That A Company Can Issue. Here Are Some Of The Common Types Of\nShare Capital:<\/strong><\/p>\n\n\n\n<ol><li><strong>Preference Shares<\/strong>: These shares give\ntheir holders a preferential right to receive a fixed dividend before any\ndividends are paid to ordinary shareholders. They may also have priority over\nordinary shares in the event of a company liquidation.<\/li><li><strong>Redeemable Shares<\/strong>: These are shares that\nthe company can buy back from the shareholder at a predetermined price and\ndate.<\/li><li><strong>Cumulative Preference Shares<\/strong>: These\nshares give the shareholder the right to accumulate any unpaid dividends from\nprevious years and receive them before any dividends are paid to ordinary\nshareholders.<\/li><li><strong>Non-Voting Shares<\/strong>: These shares do not\ngive the shareholder any voting rights, but they may still be entitled to\nreceive dividends.<\/li><li><strong>Deferred Shares<\/strong>: These shares may have\nlimited or no voting rights, and they are usually issued to founders or\nmanagement as a form of incentive. <\/li><li><strong>Bonus Shares<\/strong>: These are shares that are\nissued to shareholders free of charge, based on the number of shares they\nalready own.<\/li><\/ol>\n\n\n\n<p>Additionally, there are other types\nof share capital that a company issues can vary depending on the company&#8217;s\ngoals, financial position, and legal requirements.<\/p>\n\n\n\n<ul><li><strong>Subscribed Capital<\/strong> <\/li><\/ul>\n\n\n\n<p>This refers to the total amount of capital that shareholders have\nagreed to subscribe to a company&#8217;s shares. This can be seen as the maximum\namount of capital that a company can raise through the issuance of shares.<\/p>\n\n\n\n<ul><li><strong>Reserve Capital<\/strong> <\/li><\/ul>\n\n\n\n<p>This capital is the part of subscribed capital that a company\nchooses to keep as a reserve for future use or to provide additional security\nfor creditors.<\/p>\n\n\n\n<ul><li><strong>Called-Up Share Capital<\/strong> <\/li><\/ul>\n\n\n\n<p>This refers to the portion of subscribed capital that the company\nhas called upon shareholders to pay for their shares.<\/p>\n\n\n\n<ul><li><strong>Paid-Up Capital<\/strong> <\/li><\/ul>\n\n\n\n<p>It is\nthe portion of called-up share capital that has been paid by <strong>shareholders<\/strong><sup><a class=\"text-primary\" href=\"https:\/\/en.wikipedia.org\/wiki\/Shareholder\"><strong>[1]<\/strong><\/a><\/sup>.\nIn other words, it is the amount of money that shareholders have actually\ncontributed to the company in exchange for their shares. This amount cannot be\ncalled upon again by the company.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Advantages_and_Disadvantages_of_the_Share_Capital\"><\/span>Advantages and\nDisadvantages of the Share Capital<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>Share capital is a type of financing that allows companies to raise\ncapital by selling ownership shares to investors. The advantages and\ndisadvantages of having share capital are:<\/p>\n\n\n\n<p><strong>Advantages of Share Capital:<\/strong><\/p>\n\n\n\n<ul><li><strong>Access to Capital:<\/strong> One of the biggest\nadvantages of share capital is that it provides companies with access to a\nlarge pool of capital that can be used to fund growth, expansion, and other\nbusiness activities.<\/li><li><strong>Limited Liability<\/strong>: Shareholders of a\ncompany have limited liability, which means that they are not personally liable\nfor the debts or obligations of the company beyond the amount of their\ninvestment.<\/li><li><strong>Easy Transfer of Ownership<\/strong>: Shares can\nbe easily transferred between investors, making it easier for investors to buy\nor sell their ownership in the company.<\/li><li><strong>Increased Credibility<\/strong>: Having share\ncapital can increase a company&#8217;s credibility, as it shows that there are\ninvestors who believe in the company&#8217;s potential and are willing to invest in\nit.<\/li><li><strong>Diversification<\/strong>: By issuing shares, a\ncompany can diversify its investor base and reduce its reliance on any one\nsource of funding.<\/li><\/ul>\n\n\n\n<p><strong>Disadvantages of Share\nCapital:<\/strong><\/p>\n\n\n\n<ul><li><strong>Loss of Control<\/strong>: When a company issues\nshares, it dilutes the ownership of existing shareholders, which may result in\na loss of control for these shareholders.<\/li><li><strong>Cost<\/strong>: Issuing shares can be costly, as\nit involves legal and administrative fees, as well as the cost of listing on a\nstock exchange.<\/li><li><strong>Disclosure Requirements<\/strong>: Companies that\nissue shares are required to disclose a significant amount of information to\nthe public, which can be time-consuming and costly.<\/li><li><strong>Dividend Payments<\/strong>: Companies that issue\nshares may be required to pay dividends to shareholders, which can be a\nsignificant cost for the company.<\/li><li><strong>Volatility:<\/strong> Share prices can be\nvolatile, which may make it difficult for companies to plan and budget for the\nfuture.<\/li><\/ul>\n\n\n\n<p>Overall, share capital can be a useful financing tool for companies\nlooking to raise capital, but it also comes with its own set of advantages and\ndisadvantages that companies should carefully consider before deciding to issue\nshares.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Conclusion\"><\/span>Conclusion<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>In summary, share capital represents the permanent and fixed amount of funds that a company has raised through the sale of shares to its shareholders. The characteristics of share capital include ownership, fixed amount, perpetual existence, limited liability, dividend payments, and transferability. Overall, issuing share capital provides a company with a flexible and cost-effective way to raise funds, expand its operations, reduce debt, enhance its valuation, and incentivize its employees.<\/p>\n\n\n\n<p class=\"text-left\"><b>Read Our Article<\/b>: <mark style=\"background: #fffd03 !important;\"><a href=\"https:\/\/corpbiz.io\/learning\/5-kinds-of-share-capital\/\">What Are The Types Of Share Capital? \u2013 Detailed Overview<\/a><\/mark><\/p>\n","protected":false},"excerpt":{"rendered":"<p>It is always believed that share capital is the most convenient way to increase one\u2019s money. But let\u2019s just understand what the meaning of share capital is. Share Capital is the possession of the company or any organization by two or more than two individuals. In this article we shall go through the details about [&hellip;]<\/p>\n","protected":false},"author":55,"featured_media":55054,"comment_status":"open","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":[],"categories":[120],"tags":[3430],"acf":{"service_id":"321"},"authorName":"Soumyadipa Banik","authorImageUrl":"https:\/\/corpbiz.io\/learning\/wp-content\/uploads\/2023\/02\/MicrosoftTeams-image-66.jpg","authorDescription":"Soumyadipa is a legal professional and has completed her Masters (L.L.M.) in Business Law from Amity University. She is an aspiring content writer and legal researcher with more than a year experience. She have earlier worked for Startup companies and written business and legal articles, blogs and website content. She is good at presenting complex issues in organized, easy-to-understand terms and committed to provide highly persuasive content.","postViews":4289,"readingTime":7,"_links":{"self":[{"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/posts\/55051"}],"collection":[{"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/users\/55"}],"replies":[{"embeddable":true,"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/comments?post=55051"}],"version-history":[{"count":2,"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/posts\/55051\/revisions"}],"predecessor-version":[{"id":55056,"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/posts\/55051\/revisions\/55056"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/media\/55054"}],"wp:attachment":[{"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/media?parent=55051"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/categories?post=55051"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/tags?post=55051"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}