What is Share Capital?

How to Calculate Share Capital?

The share capital of a company can be calculated using the following formula:

Share Capital = Number of Issued Shares × Face Value per Share

Example

Suppose XYZ Ltd. issues 1,00,000 equity shares with a face value of ₹10 per share.

Share Capital = 1,00,000 × ₹10

Share Capital = ₹10,00,000

In this case, the company's share capital is ₹10 lakh.

Features of Share Capital

Below are some features of share capital:

• Represents ownership interest in a company.
• Forms a key part of shareholders' equity.
• Helps businesses raise funds without taking debt.
• Can be increased or reduced subject to legal requirements.
• Provides financial support for growth and expansion.
• Appears in the company's balance sheet.
• May carry voting rights and dividend benefits depending on the share type.
• Plays an important role in assessing a company's financial strength.

Types of Share Capital

Companies may have different types of share capital depending on the stage of share issuance and utilisation.

Authorised Share Capital

Authorised share capital refers to the maximum amount of capital a company is legally permitted to raise through the issue of shares, as specified in its constitutional documents.

Issued Share Capital

Issued share capital is the portion of authorised capital that the company offers to investors for subscription.

Subscribed Share Capital

Subscribed share capital represents the value of shares that investors have agreed to purchase from the issued shares.

Called-Up Share Capital

Called-up share capital is the amount that the company has requested shareholders to pay against the shares they subscribed to.

Paid-Up Share Capital

Paid-up share capital refers to the amount actually received by the company from shareholders against the called-up capital.

Reserve Share Capital

Reserve share capital is the portion of capital that a company decides to keep aside and utilise only in the event of winding up.

How Companies Raise Share Capital: Top Methods Explained

Companies can raise share capital through several methods depending on their funding requirements and stage of growth.

Initial Public Offering (IPO)

• A private company offers shares to the public for the first time.
• Helps raise substantial capital for expansion and business development.
• Increases public participation in company ownership.

Follow-on Public Offering (FPO)

• A listed company issues additional shares after its IPO.
• Used to raise fresh funds for growth plans, debt repayment, or expansion.

Rights Issue

• Existing shareholders receive the opportunity to purchase additional shares.
• Shares are usually offered at a predetermined price.
• Helps companies raise capital while rewarding current shareholders.

Private Placement

• Shares are issued to a select group of investors.
• The process is generally quicker than a public issue.
• Common among growing businesses and institutional fundraising.

Preferential Allotment

• Shares are allotted to specific investors at approved terms.
• Often used to bring in strategic investors or raise capital quickly.

Advantages and Disadvantages of Raising Share Capital

The following the key benefits and drawbacks of raising share capital.

Factors Affecting Share Capital of a Company

Several factors can influence the share capital requirements and structure of a company:

• Business Size and Operations: Larger companies generally require more share capital to support their business activities. 
• Expansion Plans: Companies may raise additional share capital to fund growth, expansion, or new business opportunities. 
• Industry Conditions: Competitive and capital-intensive industries often require higher capital investments. 
• Regulatory Requirements: Legal and industry regulations may influence the amount of share capital a company needs. 
• Investor Demand: Strong investor interest can make it easier for a company to raise equity capital. 
• Financial Performance: Profitable companies are often better positioned to attract investors and raise funds. 
• Future Funding Needs: Companies may increase share capital to finance upcoming projects or investments. 
• Economic Conditions: Market trends and economic factors can affect a company's capital-raising decisions.

Importance of Share Capital

Share capital plays an important role in a company's financial foundation.

• Provides funds to start and grow business operations.
• Supports long-term business expansion.
• Reduces dependence on external borrowing.
• Strengthens the company's financial stability.
• Helps build investor confidence.
• Enables companies to pursue strategic opportunities.
• Acts as a source of permanent capital.
• Supports future fundraising efforts.

Conclusion

Share capital is one of the key elements in the financial structure of any organisation. Share capital is the money obtained by the company from its shareholders. It is a vital source that helps the firm carry out all its activities. It is always useful to know more about the various types of share capital, the way share capital is computed, and the ways of raising it. This will be helpful not only for beginners but also for seasoned investors.