CAPITAL AND ITS TYPES

NAME: SAROOP
CMS:42529 SECTION: B SEMESTER: 6TH
ASSIGNMENT:2ND
MEANING AND CONCEPT OF CAPITAL

• The company’s capital adds up to all the assets and money invested into the company by
its investors in return for the company’s shares.
• Capital designates physical sources when applied to the production and it means money
hen its applied to the finance.
• Capital is a measure of the resources of an company, e.g. Land, Money, Machinery,
Building, Materials and everything that a company owns.
• Companies focuses on 4 types of capital; Debt, equity, trading and working capital.
TYPES OF CAPITAL

• Debt Capital;
• Debt capital can be obtained by taking different loans from different sources such as friends,
family, financial institutions, online lenders, insurance companies etc.
• A good creditworthiness can help a lot in obtaining loan easily. Debt payment also requires
regular interest payments.

• Equity capital;
• Equity capital comes in different forms, main distinctions are public equity and private equity.
• Equity capital is often obtained by issuing shares.
• Public equity can be obtained when a company registered itself in the stock market and then it
receives the equity from its share holders.
• Whereas private equity can only be obtained by its selected investors or shareholders.
• Working capital;
• Working capital includes a company’s most liquid capital assets available for fulfilling daily
obligations.
• It is calculated on a regular basis through the following two assessments:
Current Assets – Current Liabilities OR
Accounts Receivable + Inventory – Accounts Payable.
• Working capital measures a company's short-term liquidity—more specifically, its ability to
cover its debts, accounts payable, and other obligations that are due within one year.

• Trading Capital:
• It's the amount of money available to a company or individual for the buying and selling of
various assets. To be involved in trading, it is essential to have access to trading capital.
• Each securities market has a legal minimum of trading capital you are required to have before
you are allowed to start trading. This is to ensure you have enough to handle any losses.
CLASSIFICATIONS OF SHARE CAPITAL
• Authorized Capital: means the sum mentioned in the capital clause of Memorandum of
Association. It is the maximum amount which the company raise by issuing the shares
and on which the registration fee is paid. This limit is cannot be exceeded unless the
Memorandum of Association is altered. Its also called nominal or registered capital.
E.g. company can issue to 1 million shares @10 rs per share.

• Issued capital: Issued means that part of the authorized capital which has been offered
for subscription to members and includes shares allotted to members for consideration.
e.g. company issues 0.4 million shares @10rs per share.

• Subscribed capital: Subscribed capital means that part of the issued capital at nominal or
face value which has been subscribed or taken up by purchaser of shares in the company
and which has been allotted.
e.g. people purchase/subscribe 0.3 million shares @10 rs per share.
• Called-up capital: Called-up capital means the total amount of called up capital on the
shares issued and subscribed by the shareholders on capital account. I.e if the face value
of a share is Rs. 10/- but the company requires only Rs. 2/- at present, it may call only Rs.
2/- now and the balance Rs.8/- at a later date. Rs. 2/- is the called up share capital and Rs.
8/- is the uncalled share capital.
• e.g. Shareholders pay the price 60000 to company now and will pay the remaining 2.94
million later when asked by comapy

• Paid-up capital: Paid-up capital means the total amount of called up share capital which
is actually paid to the company by the members.
• Reserve capital: Reserve capital means Part of subscribed uncalled capital. Reserve
Capital is defined as a part of subscribed uncalled capital, which will not be called up
until and unless the company goes into liquidation.
 INCREASE AND REDUCTION OF CAPITAL
Capital reduction
• It is the process of decreasing a company's shareholder equity through share cancellations and share
repurchases, also known as share buybacks.
• The reduction of capital is done by companies for numerous reasons, including increasing shareholder
value and producing a more efficient capital structure.
• After a capital reduction, the number of shares in the company will decrease by the reduction amount.
• A company is required to reduce its share capital using a set of specific steps.
• First, a notice must be sent out to creditors of the resolution of the capital reduction.
• Second, the company has to then submit an application for entry of the reduction of share capital no earlier than
three months after publication of the initial notice.

• Share capital reduction is then expected to be paid to shareholders no earlier than three months after the
entry of reduction in the commercial register.
Increase of capital
• Capital can be increased by further issuing the shares, these shares needs to be first
offered to the current shareholders, irrespective of class.
• Such offer shall be made by notice specifying the number of shares to which the
member is entitled and limiting a time, within which the offer, if not accepted,
will be deemed to be declined.
• The offer of new shares should be signed by director or the office that works on their
behalf and a circular be made.
• A copy o that circular shall be filed with the registrar before the circular is sent to the
shareholders.
• The date should be defined in the circular by which the offer has to be accepted or it will
be deemed to decline after that date.
TRANSFER OF SHARES
• An application for registration of the transfer of shares and in a company may be made
either by the transferor or the transferee, the company shall enter in its register of
members the name of the transferee in the same manner and subject to the same
conditions as if the application was made by the transferee.
• If the transfer deed is lost or destroyed then the company may, on an application filed by
trasferee and bearing a stamp required by an instrument of transfer, register the transfer of
shares if the transferee proves the satisfaction of the directors of the company.
• Every company shall maintain at its registered office a register of transfers of shares
made from time to time and such register shall be open to inspection by the members and
supply of copy.
• In the case of a public company, a financial institution duly approved by the Commission
may be appointed as the transfer agent on behalf of the company.
• If a company makes default in complying with any of the provisions, it shall be liable to a
fine not exceeding five thousand rupees and every officer of the company who is
knowingly or willfully a party to such default shall be liable to a like penalty.