This article has been written by Mr. Aman Mishra, a 5th year student studying BALLB, from at IMS Unison University, Dehradun.
Introduction: –
Equity share capital or share capital is the cumulative value of the total equity shares it issued by the company. There were absolute customary offers gave by the company are recorded at the presumptive worth of such offers yet to be determined sheet of the company under the head Offer capital’ or Value share capital’. It was straightforwardly addresses to the cash poured in as capital by the proprietors and the financial backers of his company against the portions of the company.
How is equity share capital calculated?
As referenced above, value share capital is determined at the presumptive worth of the value shares gave by the company. The presumptive worth of the offers is the standard worth or the first expense per portion of the company. At the point when an company issue shares, such offers can be given at a limited cost (not as much as presumptive worth), along with some hidden costs (higher than face esteem), or at standard (equivalent to confront esteem). Be that as it may, in the books of the company, the value share capital is recorded at the presumptive worth of the offers regardless of their issue cost. Allow us to take the accompanying guide to comprehend the computation of value share capital.
Ex- Company A has issued 1,00,000 shares of face value Rs. 10 per share at the issue price of Rs. 12 per share. The equity share capital of company.
Types of equity share capital.
There are a few kinds of value share capital that are essential for the monetary record. A portion of the basic type of equity share capital are referenced below.
Authorized share capital
It is also known as nominal and registered share capital. The Authorized shares are amount of share capital which is authorized by the Memorandum of a company to be the maximum amount of share capital of the company by the issue of share and upon the pays stamp duty and registration.
Issued share capital.
That is a part of the authorized capital which is actually issued a share for a time being public subscription and allotment. This is a computed at the face and the nominal value. Such capital can be issues company issues from time to time for subscription.
Subscribed share capital.
It is a part of the nominal capital which is actually taken up by the shareholders and it’s the portion of the issued capital at the face value which has been subscribed for or taken up by the subscribers shares in the company. Its clear to entire that portion of issued share capital may or may not be subscribed.
Paid-up share capital
That part of issued capital which has been paid up by the shareholders that the money can received on each share because of calls is said to be paid up that is the total amount has been paid upon share the company is called the paid up.
Rights shares
Rights issues are the shares issued by the company to the existing shareholders of the company. A company usually issues rights shares to safeguard or preserve the ownership of the existing shareholders.
Bonus shares
That is a part of the issued share Bonus shares may existing a shareholders out of the company they make a profits as a reward or in the form of dividends.
What do the merits of equity share capital?
Equity share capital forms the basis of the initial investment in the company against which the basic assets of the company are built. Some of the main advantages of equity share capital are mentioned hereunder.
- permanent Capital
The funds raised through equity stares are permanent is nature.
There is no fixed commitment to return the money. Except at the time of winding up of Company.
- No change on fixed assets
To issue equity shares, a Company is not required to mortgage its asset.
- High credit standing
Amount of equity share Capital more Creditworthiness of company increases.
It increases the Confidence of Creditors.
- Huge funds
By issuing equity shares, a Company Can raise huge amount funds.
Denomination of Equity shares is very small. So, people from all income groups can invest in the equity share capital.
- No fixed Dividend
It is not a compulsory to pay a fixed rate of Dividend to Equity shareholders.
What are the demerits of equity share capital?
After learning about some basic advantages of equity share capital let us now look at a few disadvantages of equity share capital.
- Risk of fluctuating return
If a Company suffer Loss, then equity shareholders also must suffer loss because they get no return or very low return.
- Inflexibility
Equity shares is an permanent source of capital it Cannot be returned during the for lifetime of a company even if it is lying middle and there can be risk of over capitalisation.
- Legal formalities
Before issuing equity shares a company must complete many legal formalities and must take many permissions.
- Issues depend on market conditions.
Issues of equity shares depends upon market conditions. These securities are demand during boom only. During recession are demanded hesitate to invest in equity shares investors who desire to invest in securities with fixed some have no attraction for such shares.
Conclusion
The shares or debentures or other interest of any member in a company shall be movable property transferable in the manner provided by the article of the company. The share capital of the company limited by shares shall be of two kinds – equity share capital and preference share capital. Share holder received payment of dividend in proportion to the amount paid up on each share.