Meaning of Share Capital

Simply out, share capital is the total sum raised by any organisation by issuing shares. All organisations need a steady flow of capital to continue their expanding business. Remember that a company is an artificial person with its own legal identity.

When people voluntarily contribute money to an entity’s owned corpus, they automatically become co-owners of that entity. Keeping this in mind, the total capital collected by any organisation is its share capital, and its contributors are shareholders.

When modern business structures first started, share capital and its types were limited and easy to understand. Shareholders were co-owners of a company whose shares they had bought.

As businesses evolved, share capital types increased. Since the ownership of an organisation also amounts to bearing responsibility, sharing day-to-day operations and passing around losses incurred, individual shareholders backed away. They buckled under the added pressure.

Others stepped in. They were rewarded with preferred shares. Promoters of large companies were also offered extra advantages. Thus, the kinds of share capital became complicated.

The Companies Act (2013) has specific guidelines for all existing companies and the various ways they issue shares.

When it comes to organisations, the terms ‘capital’ and ‘share capital’ are practically synonymous.

When a company is registered, its papers, including the Articles & Memorandum of Association, must reflect the total capital.