Chapter 5

Question 1

What is share capital?

Answer 1

Share capital means the total amount invested by owners of the company( called shareholders or members) in the company.
Total share capital of the company is divided into different smaller parts, which are called shares. Each share has a nominal/face value.
• Nominal value is the face value of the share. It is also called Par value.
• Market value is the value at which shares are traded at the stock exchange.
Share capital of the company is usually expressed in the following terms:
100,000 shares of Rs. 50 each(face value) = 5,000,000(total amount of share capital)

Question 2

What is Authorized/Nominal Share Capital?

Answer 2

All companies limited by shares are required to have “Authorized Share Capital”. This is the maximum amount of share capital which can be issued to people. This amount is mentioned in the Memorandum of Association and can be changed only through special resolution.
It is expressed in terms of nominal value of shares.

Question 3

What is Issued/Allotted Share Capital?

Answer 3

Issued Share Capital is that part of Authorized Share Capital which has been issued to shareholders. Issued Share Capital can be less than or equal to Authorized Share Capital but cannot exceed it. Directors can issue shares without approval of members, provided it does not exceed Authorized Share Capital.

Question 4

What is paid up share capital?

Answer 4

It is that part of share capital which has been paid by the public. Earlier, there was a permission to issue partly paid shares, but now companies can only issue fully paid shares. Therefore, in most cases paid up share capital will be equal to issued share Capital.

Question 5

Discuss about publication of authorized and paid up capital.

Answer 5

Whenever a company mentions its authorized share Capital in a notice, advertisement or in any statement, it shall also mention its issued share capital at an equally prominent position. Penalty for default@ Level 1.

Question 6

What is the procedure to alter authorized share capital?
(Alteration of Capital Clause in Memorandum)

Answer 6

• A company having share capital can change its share capital if it is authorized by its articles.
• A special resolution is passed by company in general meeting to alter authorized share capital.
• Company shall file resolution and altered copy of memorandum to Registrar within 15 days of passing the special resolution.

Question 7

List down the types of share capital.

Answer 7

There are three types of share capital:
1. Authorized/Nominal Share Capital
2. Issued/Allotted Share Capital
3. Paid up Share Capital

Question 8

Discuss ways in which authorized share capital may be altered.

Answer 8

A company limited by shares can alter its authorized share capital Clause in the following ways:
1. Increase the amount of authorized share capital, or
2. Cancel the shares which have not been taken by any person, and reduce the share capital by the amount cancelled.
3. Sub-divide shares into amounts smaller than existing shares.
4. Consolidate and divide shares into amounts larger than existing shares.
5. Sub-divide the authorized share capital into Ordinary shares and Preference shares.

In case of consolidation or sub-division of shares, the rights attaching to new shares shall be strictly proportionate to rights attached to previous shares i.e., sub-division/consolidation shall not affect rights of shareholders.

Question 9

Which company can buy back its own shares?

Answer 9

Only a listed company can buy back its own shares(i.e. shares which have been taken up by the public).

Question 10

What is a share and what are its characteristics?

Answer 10

Total share capital of a company is divided into many smaller parts which are called shares.
Following points describe the nature and characteristics of shares:
1. A share is a kind of moveable property, carrying rights and obligations.
2. A share is transferable from one person to another, as per articles.
3. It must be fully paid.
4. Every share has a distinctive number.
5. Evidence of title/ownership of shares in a company is share certificate issued in;
• physical form under signature of authorized officer of the company, or
• issued in book-entry form(i.e. electronically).
Manner of issue of certificate of shares, form of certificate and other matters may be specified in articles