Share Capital Alteration: What Is It?

 Share capital alteration

If permitted by its charter, a company's share capital can be changed by issuing additional shares or increasing share capital at a general meeting. Stock can be converted from any fully paid up share. The stock should be converted into fully paid up shares.

The Definition of Share Capital 

Companies Act, 2013 defines the term share capital as the total amount of money the company raises or receives through the issue of 'common stock', 'equity stock'. In addition to IPOs and follow-on public offerings, private placements can also be used to issue these types of shares. 'Shares' are the accounting term for 'units of stock'.

The company's share capital is simply the amount received from the sale of its shares. Through FPOs, additional offerings, or buybacks of shares by the company, the company's share capital changes over time. Changes in share capital include both increases and decreases in the company's share capital, so it is a much broader term than reductions.

The Share Capital Concept 

There are two components to the share capital raised by the company:

* Value at face value

* Premium Shares

A 'face value' is the nominal amount reported or accounted for on the 'Balance Sheet' as a result of stock sales. An Indian company's nominal share amount varies depending on its nature, such as ₹5, ₹10, or even ₹100, etc.

Investors pay the company an excess amount of par value in share premiums or additional paid-in capital. The term 'security premium' also refers to capital in excess of par. The securities premium account is reported in the shareholders' equity section of the Balance Sheet. 

To understand the share capital components, let's look at easy example #1:

The XYZ Company issued 10,000 shares at a price of 50 cents per share, with a face value of 10 cents. Determine the total amount of the share premium.

The Issue Price equals the Par Value Share Premium (₹50 = ₹10 ₹40)

The share capital is equal to the total number of outstanding shares multiplied by the issue price per share. The total value of 10,000 shares x 50 cents per share equals Rs 5,00,000.

In this case, the total amount of securities or share premium is equal to (10,000 shares x ₹40 per share = ₹4,00,000)

In the balance sheet, the nominal value of share capital remains unchanged regardless of market price fluctuations, and only changes during FPO, which raises the overall capital. 

Different types of share capital 

* There is a maximum ceiling limit beyond which the company cannot issue shares without altering its share capital. Known as 'registered capital' or 'nominal capital', this is the total of issued and unissued shares of the company

* Investors are offered or issued a part of the 'authorised capital'

* The unissued share capital refers to the capital that has not yet been issued, and the company issues it in order to raise capital over time.

* Publicly subscribed capital is part of the 'issued capital'. Following example #1, if the issued capital is 12,000 shares, then the subscribed shares can be 10,000 shares.

* The company calls up 'called-up capital' from investors in instalments. Capital that has not yet been called is known as 'uncalled share capital', which is the shareholder's contingent liability

* Paid-Up Capital: Shareholders pay a portion of their 'called-up capital' to the company

* Reserve Share Capital: Reserve Share Capital is a special type of share capital that can only be sold during a liquidation or bankruptcy. There are various restrictions attached to these shares that make liquidation easier

* There are also circulating and fixed share capitals.

Capital Alterations Types 

By following the procedures for altering share capital and other relevant procedures, the company that decides to alter its share capital can do so in a variety of ways. The following are some ways the company can alter its share capital:

It entails a lot of legal procedures, filing of forms with ROC, etc., to increase 'authorised share capital' by issuing fresh shares.

* Share capital consolidation and subdivision

* Shares are canceled

* Capital conversion

Conclusion 

This article explains how share capital is defined, its types, and how it is accounted for in the balance sheet. Debentures, bonds, buybacks of shares, etc., change the share capital over time. Cash/bank is debited and share capital is credited for the issue of shares and paid-up capital.