Share Capital

Share Capital of the Public Limited Companies: All you need to Know Introduction Share capital is an essential thing for any Public Limited Company (PLC). It refers to the funds raised by a company from its shareholders in exchange for ownership in the company. The share capital of a company is a vital source of financing for the business, which helps it to expand and grow. In this article, we will discuss what share capital is and the 2 categories of share capital, along with the benefits of having a share capital for a public limited company. What is Share Capital? Share capital is the total value of capital raised by a company through the issuance of shares to its shareholders. It is a crucial component of a company's balance sheet and is used to finance its operations and growth. The value of share capital is determined by multiplying the number of shares issued by the price of each share. What are the 2 categories of Share Capital? The 2 categories of share capital are equity share capital and preference share capital. 1. Equity Share Capital Equity share capital is the most common form of share capital. It represents the ownership interest of the shareholders in the company. Equity shareholders have the right to vote on company decisions and are entitled to receive dividends. They also bear the risk of the company's losses. 2. Preference Share Capital Preference share capital is a form of share capital where the shareholders receive a fixed dividend at a predetermined rate before any dividend is paid to the equity shareholders. In case the company goes bankrupt, the preference shareholders have a preferential claim over the company's assets. What is the minimum capital of Public Limited Companies? In India, there is no minimum capital requirement for public limited companies as per the Companies Act, 2013. Previously, the minimum authorized capital for a public limited company was Rs. 5 lakhs, but this requirement was removed by the Companies Act, 2013. This means that a public limited company can be incorporated with any amount of capital. The capital can be as low as Rs. 1 or even less. However, the authorized capital should be sufficient for the company's requirements and future growth plans. The authorized capital is the maximum amount of capital that a company can issue to its shareholders. It is mentioned in the company's Memorandum of Association (MOA). The issued capital is the actual amount of capital that has been issued to the shareholders by the company. It is important to remember that the amount of capital that a company issues to its shareholders is not the same as the company's valuation. The valuation of a company depends on several factors such as its assets, liabilities, profitability, market conditions, etc. What are the Benefits of having Share Capital for a Public Limited Company? There are several benefits of having a share capital for a public limited company. Here are a few: 1. Source of Finance: Share capital is a source of finance for a public limited company, which helps in financing its operations and growth. The funds raised from share capital can be used to invest in new projects, research, and development, or to expand the existing business. 2. Limited Liability: The shareholders of a public limited company have limited liability. This means that their liability is limited to the amount of share capital they have invested in the company. If the company goes bankrupt, the shareholders are not personally liable for the company's debts beyond the amount of their investment. 3. Access to Capital Markets: A public limited company can access capital markets and raise funds by issuing shares to the public. This helps the company to raise a large amount of capital without having to depend on banks or other financial institutions for loans. 4. Increased Credibility: A public limited company with share capital is considered more credible than a private limited company. This is because a public limited company has to comply with stricter regulations and disclosure requirements. It is also subject to more scrutiny by shareholders and regulatory authorities, which helps in building trust and credibility with investors and customers. How is capital increased in Public Limited Companies? Issuing new shares: One of the most common ways to increase capital in public limited companies is by issuing new shares. The company can sell these shares to the public or existing shareholders through the primary market. This is known as a rights issue or an initial public offering (IPO). Bonus issue: Companies can also increase their share capital by issuing bonus shares to existing shareholders. Bonus shares are additional shares issued to the shareholders at no additional cost. Private placement: Companies can raise capital through private placement by issuing shares to a select group of investors. This is done without going through the process of a public issue. Convertible bonds: Companies can issue convertible bonds which can be converted into shares later. This can help to increase the share capital of the company. Conclusion In conclusion, share capital is an important component of a Public Limited Company. It provides a source of finance for the operations and growth of the company, while also providing limited liability to the shareholders. The two categories of share capital, equity, and preference, offer different benefits to the shareholders. Having capital also increases the company's credibility and access to capital markets, which helps in expanding the business. It is important for a Public Limited Company to consider its share capital structure carefully and the benefits it offers to the shareholders. Suggested Read: Legal Consequences of Strike Off OPC

Share Capital

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