Brief note on the term capital

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The word ‘capital’ used in connection with a company has several different meanings. It may mean the nominal, issued, paid-up or reserve share capital of the company.

1. Nominal, registered or authorized capital:

Every company limited by shares or limited by guarantee and having a share capital is required to have a nominal capital with which it is registered. The nominal or authorized capital is the amount of share capital which a company is authorized to issue. Nominal capital is divided into share of a fixed amount. It must be set out in the memorandum of association. The amount of the company’s nominal capital depends on its business requirements. Nominal capital can be increased or reduced by following the prescribed procedure.

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2. Issued capital:

It is that part of the nominal capital which is actually issued by the company for public subscription. A company is not obliged to issue all its nominal capital at once; it may have an un allotted residue to be allotted in the near future as and when the company needs further capital. The difference between the nominal and the issued capital is known as the unissued capital.

3. Subscribed capital:

It is the total amount of the nominal value of shares which have been actually taken up i.e. subscribed for the public. It is that part of the nominal capital which has actually been taken up by shareholders who have agreed to give consideration in cash or kind for the shares issued to them. The subscribed capital, is thus, a reality. Where the shares issued for subscription are wholly subscribed for, issued capital, would mean the same thing as ‘subscribed capital’.

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4. Called-up capital:

It is that amount of the nominal value of shares subscribed for, which the company has asked its shareholders to pay by means of calls or otherwise.

5. Paid-up capital:

The paid-up capital is that part of the issued capital which has been paid-up by the shareholders. The money received on each share as a result of calls is said to be paid-up and the total amount that has been paid upon the company’s shares is the paid-up capital which can never exceed the issued capital.

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6. Uncalled capital:

This is the amount which remains unpaid on shares. The company may, at any time, call upon the shareholders to pay the uncalled capital in accordance with the provision of the articles.

7. Reserve capital:

A company may resolve by special resolution that part or the whole of the uncalled capital shall not be called upon except in the event of winding up. This amount is called ‘the reserve capital’ or ‘the reserve liability’. Reserve capital cannot be turned into ordinary capital without leave of the court and it cannot be dealt with or charged by the directors. It is available only for the creditors on the winding up of the company.

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