Kinds of Share Capital

In company law, specifically under the Companies Act, 2013, "Share Capital" can be classified in two ways: by nature/rights (the types of shares issued) and by accounting status (the stages of capital realization).

1. Classification by Nature (Section 43)

Section 43 of the Act specifies that a company limited by shares can have only two kinds of share capital:

A. Equity Share Capital

Equity shares represent the "ownership" capital.

• Definition: All share capital which is not preference share capital.

• Risk/Reward: Equity shareholders carry the most risk (they are paid last) but enjoy the residual profits.

• Voting Rights: Usually, equity shares carry voting rights on every resolution.

• Differential Rights: A company can issue equity shares with differential rights (DVRs) regarding dividends or voting, subject to specific rules.

B. Preference Share Capital

As the name suggests, these shares have certain "preferences" over equity shares:

• Preferential Dividend: A fixed rate of dividend must be paid to them before any dividend is paid to equity shareholders.

• Repayment Preference: In the event of winding up, they are entitled to be paid back their capital before the equity shareholders.

• Voting Rights: Usually, they do not have voting rights unless a resolution directly affects their rights or if dividends have been in arrears for two years or more.

2. Classification by Accounting Status

This classification tracks the journey of capital from the company's constitution to the actual cash in the bank.

Kind of Capital	Description
Authorized (Nominal) Capital	The maximum amount of share capital a company is authorized by its MoA to issue.
Issued Capital	The portion of authorized capital actually offered to the public for subscription.
Subscribed Capital	The part of issued capital for which applications have been received and accepted by the company.
Called-up Capital	The portion of the subscribed capital that the company has officially asked shareholders to pay (e.g., ₹5 called on a ₹10 share).
Paid-up Capital	The actual amount of money received by the company. (Paid-up = Called-up — Calls in Arrears).
Reserve Capital	A portion of uncalled capital that a company, by special resolution, decides to call only in the event of winding up.

3. Other Specific Types of Shares

• Sweat Equity Shares: Issued to directors or employees at a discount or for consideration other than cash for providing know-how or intellectual property rights (Section 54).

• Bonus Shares: Free shares issued to existing shareholders by capitalizing the company’s reserves (Section 63).

• Rights Shares: Shares offered to existing shareholders first to ensure they can maintain their percentage of ownership (Section 62).