Explain the classification of share capital.

Answer: Share capital is the capital raised by a company by issue of shares. Under the Companies Act, 2013 it is classified as follows:

1. Authorised capital (nominal / registered capital): The maximum amount of share capital which a company is authorised by its Memorandum of Association to raise. The company cannot issue shares beyond this limit; it can be increased by altering the capital clause of the Memorandum. Example: ₹ 10 crore divided into 1 crore shares of ₹ 10 each.
2. Issued capital: The part of authorised capital which is actually offered to the public, existing shareholders or others for subscription. It may be equal to or less than authorised capital.
3. Subscribed capital: The part of issued capital which is actually taken up (applied for and allotted) by investors. It may be equal to or less than issued capital.
4. Called-up capital: The part of subscribed capital which the company has called upon the shareholders to pay (on application, allotment and calls).
5. Uncalled capital: The part of subscribed capital which has not yet been called up. A company may by special resolution decide that a part of uncalled capital will be called only on winding up; this is called reserve capital.
6. Paid-up capital: The part of called-up capital actually paid by the shareholders. Called-up capital less calls in arrears gives paid-up capital.
7. Calls in arrears: The amount called up but not yet paid by some shareholders.

In addition, according to the kind of shares, share capital is of two types: (1) equity share capital, which carries voting rights and a variable dividend (including equity shares with differential voting rights); and (2) preference share capital, which carries preferential rights to a fixed dividend and repayment of capital before equity shareholders.

Illustration: A company with authorised capital of ₹ 50 lakh issues 4 lakh shares of ₹ 10 each (issued capital ₹ 40 lakh). Applications are received and shares allotted for 3.5 lakh shares (subscribed capital ₹ 35 lakh). It calls ₹ 8 per share (called-up capital ₹ 28 lakh; uncalled ₹ 7 lakh). If ₹ 50,000 remains unpaid on calls, paid-up capital is ₹ 27.5 lakh.