CAPITAL OF THE COMPANY
Capital is the initial investment of cash or the goods
invested to start the business. It is the net worth of the business or the
excess of assets than the liabilities is called as capital.
CAPITAL OF THE COMPANY:
It is also called as share capital which refers to the
amount of capital raised by the issue of shares by a company.
FEATURES OF SHARE CAPITAL:
Own capital – a share capital is own capital of the
company which is given by shares by purchasing shares of the company.
Remains with the company – it remains with company
till the liquidation.
Expansion – for the expansion of business and
diversification there is a need of share capital.
Flexible – a share capital is most dependable finance
for the company and it has adjustability.
Earning profit – the share capital should fetch
profits to the company.
KINDS / TYPES OF SHARE CAPITAL:
- Authorized capital – it is the maximum amount of capital, in which the company can collect by general public.
- Issued capital – it is the part of authorized capital which is actually issued to general public.
- Subscribed capital – it is the part of issued capital which is actually subscribed by general public.
- Called up capital – it is a part of subscribed capital which is called up by the company (1st call, 2nd call, 3rd call, final call).
- Paid up capital – it is a part of called up capital which is paid by the shareholders.
SHARES:
There are two types of share:
1. Equity
share
2. Preference
share
Equity share:- These are the shares which do not enjoy the preference right in respect of receiving the dividend or re-payment of capital during winding up of company.
It is a
long-term capital
It is
huge capital and permanent source of capital
It is
also called as risk capital
They have
voting rights
More
income is obtained
DISADVANTAGES
OF EQUITY SHARES:
They do
not get preferential rights
Collecting
the equity share capital is too costly and more complicated
There is
no guarantee of receiving dividend
During
liquidation equity share holder will suffer the worst condition because of bad
financial position
TYPES OF PREFRENCE SHARES:
- Cumulative preference shares
- Non-Cumulative preference shares
- Convertible preference shares
- Non-Convertible preference shares
- Participating preference shares
- Non-participating preference shares
- Redeemable preference shares
- Non-redeemable preference shares
ADVANTAGES OF PREFRENCE SHARES:
it is
huge capital and permanent capital.
It is
long term capital suitable for during large scale business.
Cumulative
preference shareholder can get arrears of profit.
Redeemable
preference share holder can withdraw the capital without liquidation.
DISADVANTAGES OF PREFRENCE SHARES:
Preference
share holder are not having voting rights.
The
company face financial burden, while paying the dividend for cumulative
preference share.
In case
of redeemable preference share the capital will be made for which the company
has to maintain a separate reserve fund.
Compare
to debentures the dividend received by preference share holder is less.
KEY POINTS:
PREFRENCE
SHARES:
- Preference shares are the shares which gets the priority either receiving the dividend or getting back the capital
- The nominal value is higher
- The percentage of dividend is fixed
- Thy do not carry voting rights
- It cam be redeemable during the running time
- The arrears of dividend is paid
- The risk is less
- There is no ownership rights
- Equity shares are the shares which cannot get the preferential rights in dividend and getting back of capital
- The nominal value is lower
- The percentage of dividend is irregular
- They carry voting rights
- It cannot be redeemable till liquidation
- The arrears of dividend not paid
- The risk is more
- There is ownership rights
