Share capital is the ownership capital a company raises by issuing shares. Under section 2(84) of the Companies Act, 2013, a share means a share in the share capital of a company and includes stock. For CA firms, finance teams, founders, and students, the subject matters because the same transaction affects company law, shareholder rights, balance-sheet presentation, board and shareholder approvals, and MCA filings.
The first distinction to keep clear is that share capital is not one number. It moves through stages: what the company is allowed to issue, what it actually issues, what investors subscribe to, and what has actually been paid.
| Term | What it means | Why it matters |
|---|---|---|
| Authorised capital | The maximum share capital the memorandum authorises the company to issue. | It is the legal ceiling. A company cannot validly issue shares beyond it without first altering capital. |
| Issued capital | The part of authorised capital that the company has actually offered or allotted. | It shows how much of the ceiling has been used. |
| Subscribed capital | The part of capital subscribed by members. | Section 2(86) expressly defines subscribed capital; it shows investor commitment. |
| Paid-up capital | The amount actually paid on the shares subscribed. | It shows the amount actually received from shareholders against share capital. |
| Securities premium | The amount received over face value on issue of shares. | It is not the same as share capital and is dealt with separately under section 52. |
What share capital means in practical work
In day-to-day company work, share capital answers five different questions at once:
- Who owns the company, and in what proportion?
- What voting and economic rights attach to that ownership?
- How much fresh equity can still be issued without first altering the memorandum?
- What legal route is being used for a new issue: rights, bonus, private placement, or public offer?
- Which approvals, registers, disclosures, and MCA filings follow from the transaction?
That is why confusion usually starts when someone says, for example, that a company has capital of Rs. 10 lakh. That statement is incomplete unless you know whether the figure is authorised, issued, subscribed, or paid-up.
The two statutory kinds of share capital
Section 43 states that the share capital of a company limited by shares is of two kinds: equity share capital and preference share capital.
Equity share capital
Equity share capital is the residual ownership capital. It may carry voting rights, or differential rights as to dividend, voting, or otherwise, subject to prescribed rules. Equity shareholders usually bear the main upside and downside of the company because they are paid after preference shareholders as to preference rights.
Preference share capital
Preference share capital carries a preferential right over equity with respect to dividend and repayment of capital, as described in section 43. Section 55 also matters here: irredeemable preference shares cannot be issued, and redeemable preference shares are generally to be redeemed within twenty years from issue, subject to the statutory infrastructure-project exception.
So, the label "preference" is about priority of rights, not about overall control. A company may be largely controlled by equity shareholders even where preference capital is substantial.
A simple example that removes most confusion
Assumptions: ABC Private Limited has a memorandum authorising 1,00,000 equity shares of Rs. 10 each. It initially allots 10,000 equity shares of Rs. 10 each to two founders, fully paid.
| Item | Amount | Reason |
|---|---|---|
| Authorised capital | Rs. 10,00,000 | 1,00,000 shares x Rs. 10 face value |
| Issued capital | Rs. 1,00,000 | 10,000 shares actually allotted |
| Subscribed capital | Rs. 1,00,000 | All 10,000 allotted shares are taken up by members |
| Paid-up capital | Rs. 1,00,000 | Founders paid the full face value |
The company still has headroom to issue shares up to the balance of its authorised capital. If it wants to issue beyond that ceiling, section 61 and section 64 become relevant before the fresh issue can be fully regularised.
How share capital is issued or increased
The correct route depends on the company type and the transaction. Section 23 is the starting point.
- A public company may issue securities through public offer, private placement, rights issue, or bonus issue.
- A private company may issue securities by rights issue, bonus issue, or private placement.
1. Rights issue
Section 62 governs a further issue of share capital when a company proposes to increase its subscribed capital by issuing further shares. As the default rule, the shares must first be offered to existing equity shareholders in proportion to the paid-up share capital already held by them.
One change-sensitive point is verified directly from section 62(1)(a)(i): the offer notice must ordinarily keep the offer open for not less than 15 days and not more than 30 days from the date of the offer, subject to the statutory allowance for a shorter period where prescribed.
Example: Assume a company has 10,000 fully paid equity shares outstanding and wants to raise additional owner funds without disturbing relative ownership. It offers 1 share for every 4 shares held, so 2,500 new shares are offered. If the face value is Rs. 10 and the issue price is Rs. 50, then Rs. 25,000 goes to share capital and Rs. 1,00,000 goes to securities premium.
2. Private placement
Section 42 is the key section where shares are issued to a selected group rather than offered proportionately to existing equity holders or to the public. Several facts here are change-sensitive and worth treating carefully in practice.
- Section 42 requires identified persons and a private placement process rather than a public invitation.
- Subscription money must come through banking channels and not in cash.
- For the private placement issue, allotment must be completed within 60 days from receipt of application money.
- Section 42(8) requires a return of allotment within 15 days from allotment.
On current MCA portal materials, PAS-3 is identified as the return of allotment form. That naming is reflected in official government materials linked below.
3. Bonus issue
A bonus issue capitalises eligible reserves into share capital instead of bringing fresh money into the company. It changes the capital structure and share count, but not because shareholders paid fresh subscription money. The legal route is distinct from a rights issue or private placement.
4. Public offer
For a public offer, section 39 becomes relevant. Among other things, section 39(4) states that whenever a company having a share capital makes any allotment of securities, it must file a return of allotment with the Registrar in the prescribed manner.
What can be altered after issue
Share capital is not static. Section 61 permits a limited company having share capital, if authorised by its articles, to alter its memorandum in general meeting to do things such as:
- increase authorised share capital;
- consolidate and divide shares into larger denominations;
- convert fully paid shares into stock and reconvert stock into fully paid shares;
- sub-divide shares into smaller denominations; and
- cancel shares not taken or agreed to be taken.
That last point is easy to miss: cancelling unissued shares under section 61(1) is not the same as a tribunal-confirmed reduction of share capital under section 66.
Section 64 then becomes the compliance bridge. Where a company alters share capital in a manner covered by section 61, or where other specified capital events occur, the company must file notice with the Registrar. The official text also states the filing period of 30 days for such alteration, increase, or redemption, as applicable.
On current official MCA-related materials, SH-7 is the form description used for alteration in capital.
Three edge cases that often change the answer
Securities premium is not face-value capital
If shares are issued above face value, the excess is not added to share capital. Section 52 requires the premium amount to be transferred to the securities premium account, which has specific permitted uses.
Discounted issue is generally prohibited
Section 53 says a company cannot issue shares at a discount, except for the statutory carve-out linked to debt conversion under a resolution plan or debt restructuring framework. A premium issue is common; a discount issue is not the default.
Reduction of share capital is a separate regime
Section 66 deals with reduction of share capital and requires tribunal confirmation, subject to the statutory conditions. Practitioners should not confuse a simple increase or sub-division under section 61 with a reduction under section 66.
What professionals should check before signing off
- Whether the articles authorise the proposed capital action.
- Whether the memorandum's authorised capital is sufficient for the proposed allotment.
- Whether the route is correctly identified: rights, bonus, private placement, preference issue, or public offer.
- Whether the board and shareholder approvals match the route used.
- Whether the issue price is split correctly between face value and premium.
- Whether statutory timelines for allotment and return filings are being tracked from the correct event date.
- Whether registers, share certificates or depository records, and financial statement disclosures are aligned.
- Whether the company is accidentally treating cancellation, redemption, or restructuring as a simple increase event.
Bottom line
Share capital is best understood as a legal structure with accounting consequences, not just as money introduced by owners. The core sequence is simple: authorised capital sets the ceiling, issued capital uses the ceiling, subscribed capital records member commitment, and paid-up capital shows what has actually been paid. Once that sequence is clear, most compliance questions become route-specific: which section applies, which approval is needed, and which MCA filing follows.
For the current statutory text and portal references used for change-sensitive points in this article, see the MCA portal, the Companies Act, 2013 on India Code, the official note on MCA company forms, and the PIB releases referring to SH-7 and PAS-3.
