Authorized Share Capital

Question 1

Authorised and paid up shares capital

Answer 1

Let’s break down the nature of shares and their characteristics as outlined in Sections 2(63) and 60 to 62.

• Share: A share represents a unit of ownership in the share capital of a company.

1. Movable Property:
   
   • Rights and Obligations: Shares carry certain rights (like voting rights, dividends) and obligations (like paying for the shares).
   • Transferability: Shares can be transferred from one person to another as per the company’s articles of association.
   • Example: If you own shares in ABC Ltd., you can sell them to another person following the company’s transfer procedures.
2. Payment for Shares:
   
   • Full Payment: Shares must be fully paid for when they are allotted to the shareholder.
   • Example: If you subscribe to 100 shares at $10 each, you must pay $1,000 in full to receive the shares.
3. Distinctive Number:
   
   • Identification: Each share in a company with share capital is identified by a unique number.
   • Example: Share certificate number 12345 might represent your ownership of 50 shares in XYZ Ltd.
4. Share Certificate:
   
   • Evidence of Ownership: A share certificate, either in physical form signed by an authorized officer or in electronic form, serves as proof of ownership.
   • Example: You receive a physical share certificate or an electronic record confirming you own shares in the company.
5. Issuance and Form:
   
   • Articles of Association: The company’s articles specify the manner of issuing share certificates and other related matters.
   • Example: The articles might detail the format of the share certificate and the process for issuing them.

1. Issuance:
   
   • Offering Shares: The company offers shares to the public or specific investors.
   • Example: ABC Ltd. announces it is issuing 1,000,000 new shares to raise capital.
2. Subscription:
   
   • Payment for Shares: Investors or promoters pay for the shares they want to purchase.
   • Example: You decide to buy 500 shares and pay the required amount to the company.
3. Allotment:
   
   • Assigning Shares: The company allots shares to the names of the applicants who have paid for them.
   • Example: After receiving your payment, ABC Ltd. allots 500 shares to you, and your name is recorded in the company’s register of members.

I hope this explanation helps clarify the nature and characteristics of shares! If you have any more questions or need further examples, feel free to ask.

Let’s go through the concepts of authorized and paid-up share capital in detail, along with examples to ensure everything is clear.

Definition:
- Authorized Capital: Also known as nominal capital, this is the maximum amount of share capital that a company is authorized to issue as specified in its memorandum of association.

Example:
- If ABC Limited has an authorized share capital of 800,000 ordinary shares at Rs. 10 each, the total authorized capital is Rs. 8,000,000.

Definition:
- Issued Share Capital: The nominal value of shares that have been issued to shareholders. This amount can be equal to or less than the authorized share capital but cannot exceed it.
- Paid-Up Share Capital: The portion of the issued share capital that has been fully paid by the shareholders.

Example:
- If ABC Limited has issued 400,000 shares at Rs. 10 each, the issued share capital is Rs. 4,000,000. If all these shares are fully paid, the paid-up share capital is also Rs. 4,000,000.

Requirement:
- When a company publishes any notice, advertisement, or official publication that states the amount of its authorized capital, it must also prominently state the amount of its paid-up capital.

Penalty:
- Failure to comply with this requirement can result in a penalty for the company and its officers.

Requirement:
- Companies can only issue fully paid shares. Partly paid shares are no longer allowed.

Example:
- ABC Limited, with an authorized share capital of 800,000 shares at Rs. 10 each (totaling Rs. 8,000,000), has issued 400,000 shares, all of which are fully paid. This means the issued and paid-up share capital is Rs. 4,000,000.

• Nominal Value: The face value of the shares, also known as par value or stated value. For example, Rs. 10 per share.
• Market Value: The price at which shares are traded on the stock exchange, which is usually higher than the nominal value.

1. Authorized Share Capital: Maximum share capital a company can issue, as specified in its memorandum.
   
   • Example: Rs. 8,000,000 for ABC Limited.
2. Issued and Paid-Up Share Capital: Shares issued to shareholders and fully paid for.
   
   • Example: Rs. 4,000,000 for ABC Limited (400,000 shares at Rs. 10 each, fully paid).
3. Publication Requirement: Companies must state both authorized and paid-up capital in notices and advertisements.
   
   • Penalty: Non-compliance can lead to penalties.
4. Fully Paid Shares: Companies can only issue fully paid shares.
   
   • Example: ABC Limited’s 400,000 shares are fully paid.
5. Nominal vs. Market Value: Nominal value is the face value of shares, while market value is the trading price, usually higher.

I hope this comprehensive explanation helps! If you have any more questions or need further details, feel free to ask.