types of share capital

Types of Share Capital Of Company

What is the share capital of the Company?

Share capital means to share in the capital of the company. Basically share means a part which means taking part in the capital of the company. Capital means the amount of investment. It is that amount which is invested by the shareholder of the company at the time of registration and for expanding business activity. It is the most necessary part of the company. Share capital basically means sharing the ownership of the company according to their investment as a capital. A company cannot get registered without the capital, however, there is no minimum capital requirement for the company registration but there should be some amount in the form of share capital.

What are the different types of share capital?

Basically, there are only two types of share capital in a company one is Equity Share Capital and the second one is Preference Share Capital. However, the main capital of the company is Equity Share Capital and the equity shareholders are the real owner of the company. But there are many different ways to issue these two capitals in a company i.e. there are sub-categories of equity share capital & preference share capital.

What is equity share capital?

“As per Companies Act, 2013 the equity share capital means the share which is not a preference share capital”

However, the equity share capital means the value of the company, every company which is limited by shares whether it is a private limited company or public limited company or a one-person company or even a section-8 company is registered with equity share capital only. Equity Share Capital is the real investment tool in the company as it gives real ownership and provides the right over the company’s management and decision. There are two types of equity share capital:

  1. Equity share capital with voting rights
  2. Equity share capital with differential rights as to dividend, voting or otherwise

Equity share capital with voting rights:

Means the shareholder having the right to vote in the general meeting of the company.

Equity share capital with differential rights:

Means the shareholder can change their right from the attached rights i.e. either they can increase or decrease their voting right or dividend right or take an equal right in dividend ratio and voting right.

What is the difference between equity share capital and preference share capital?

Both are the capital of the company but there is a lot of difference between these two capitals and the differences are:

  • Preference share capital gets preference in dividend sharing as they get a fixed % of dividend before dividend paid to the equity share capital.
  • Generally, Preference shareholder doesn’t have any right to vote in the general meeting of the company whereas the company cannot take any major decision without the consent of equity shareholder.
  • The company cannot issue a preference share for more than 20 years (30 years in some cases) but there is no such time limitation for equity share capital.
  • The true owner of the company is the equity shareholders however; the preference shareholders are only the investors of the company.
  • The company can be registered only with the equity share capital, not with the preference share capital.

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