Question

What do you mean by share capital of a company? Explain the main categories in which the share capital of a company is divided.

Hint:

Share capital is divided into different categories to ensure proper regulation and management of the funds raised by the company.

Answer 1

Step 1: Definition of Share Capital.
Share capital refers to the funds raised by a company in exchange for shares of stock. The capital raised is used for business operations, expansion, or to meet other financial needs. Shareholders contribute to the company’s share capital and receive equity ownership in return.
Step 2: Main Categories of Share Capital.
The share capital of a company is divided into two main categories:
1. **Authorized Capital (or Nominal Capital):** This is the maximum amount of capital a company is authorized to raise by issuing shares. It is stated in the company's memorandum of association and cannot exceed this amount without changing the company's articles of incorporation.
2. **Issued Capital:**
This is the portion of authorized capital that the company has actually issued to shareholders. It is the amount the company has raised by selling shares.
3. **Subscribed Capital:**
This is the portion of issued capital that shareholders have agreed to purchase. It is the part of the issued capital that has been subscribed by investors.
4. **Paid-Up Capital:**
This is the portion of subscribed capital that has actually been paid by the shareholders. If a shareholder has fully paid for their shares, they are considered to have fully paid-up capital.
Step 3: Conclusion.
Thus, share capital includes authorized capital, issued capital, subscribed capital, and paid-up capital, each serving a different purpose in the financing and functioning of the company. Final Answer: \[ \boxed{\text{Share capital refers to the funds raised by a company through the issuance of shares, divided into authorized, issued, subscribed, and paid-up capital.}} \]