Share Capital, its kinds under company Law

1. Introduction

Share capital is the amount contributed by the share holders to the company’s resources. It is generally divided into different categories. Increase and reduction in this share capital is possible according to regulation given under company Ordinance. But for this increase or reduction there has been laid down a procedure and any change cannot be made into by stepping down from that procedure.

2. Definition of Share Capital

According to Curzon Share capital is the total amount which a company’s share holder has contributed or is liable to contribute as payment of their shares.

3. Kinds of Share Capital

Share capital may be divided into the following kinds

i. Nominal Authorized or Registered Capital

This is the sum stated in the memorandum. This the maximum amount which the company is authorized to raise.

ii. Issued Capital

This is the amount which company needs for time being and has been issued for subscription.

iii. Subscribed Capital

Subscribed capital is that portion of the issued capital which has been subscribed or taken up by the purchasers of the shares of the company.

iv. Called up

It is the total amount called upon the shares issued when shares are to be partly paid up.

v. Uncalled Capital

It is total amount not called upon the shares issued and which the shareholders continue to be liable to pay as and when called.

vi. Paid up capital

Paid up capital is the total amount of paid up or credited as paid upon shares issued including premium on shares.

vii. Unpaid Capital

Unpaid capital is the total amount of capital remaining unpaid by some share holders who have subscribed for shares.

viii. Reserved capital

This is the portion of subscribed capital which has not been called up except in the event  and for the purposes of winding up of a company.

4. Reduction in Share Capital

a. Conditions

i. Power to reduce capital

Company must have power to reduce share capital.

ii. Special Resolution

Company must pass a special resolution for reducing share capital.

iii. Confirmation

Company must get confirmation of the court reducing the share capital.

b. Modes of Reducing share capital

To modes for reducing share capital are the following 

i. By reducing liability

Reduction may be made by extinguishing or reducing the liability of shares in respect of capital not paid up.

ii. By cancelling capital

Reduction may be made by cancelling any paid up share capital which is lost or unrepresented by available assets.

iii. By paying off capital

Reduction may be made by paying off capital which is in excess of the needs of the company.

c. Procedure for reduction

i. By special resolution

The company shall pass a special resolution reducing the share capital.

ii. Petition to the court

Where a company has passed a resolution for reducing share capital it shall then apply by a petition to the court for an order confirming the reduction.

iii. Obtaining order without delay

If the proposed reduction does not involve cancellation of uncalled capital or the refund by paid up capital the court’s order can be obtained without undue delay, as the interest of creditor is not involved.

iv. Safeguarding the interest of creditors

Where hover the interest of creditors are affected, an inquiry will be made by the court as the debts and liabilities and the consent of the creditors to the proposed reduction must be obtained or other satisfactory arrangements made for such interest to be safeguarded.

v. Addition of words

The court may order the words and reduced to be added to the company’s name for such period as may be directed.

vi. Registration of order of reduction

The order of the court and minutes of reduction approved by the court shall be registered with the registrar.

vii. Certification of registration

The registrar shall under his hand certify the registration of the order and minutes.

viii. Publication of notice

The notice of registration shall be published in such manner as the court may direct.

5. Right of creditors to object

The creditors may object on the reduction of share capital in following cases

i. Diminution of liability

If there occur diminution of liability in respect of unpaid share capital.

ii. Payment to share holders

If any paid up share capital has been paid to any share holder.

iii. Court’s Direction

In any other case if the court so direct, the creditor may object on the resolution of reduction of share capital.

Conclusion

If power to reduce capital is given in the articles, the company may reduce its share capital easily and if there is no such power given in the articles, the articles may be changed by a special resolution and reduction in share capital may be made according to it.

The creditors may present their objections or reduction and the court is authorized to make confirmation regarding reduction by removing their objections. The creditors either may give their consent to reduction or court may remove their objections.

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