Understanding Types of Share Capital and Their Order

In company law, share capital refers to the money a company raises by issuing shares to the public. There are different stages or types of share capital that represent the maximum amount a company can issue, the amount offered, the amount taken up by investors, the amount demanded, and the amount actually received. Understanding the correct order of these types is fundamental to understanding a company's capital structure.

Defining Different Share Capital Types

Let's define each type of share capital mentioned in the question:

• Authorised Capital (C): This is the maximum amount of share capital that a company is authorised by its Memorandum of Association to issue to shareholders. It is also known as Registered Capital or Nominal Capital. A company cannot issue shares worth more than its authorised capital unless the memorandum is altered.
• Issued Capital (B): This is the part of the authorised capital that the company has offered to the public or to existing shareholders for subscription. The issued capital can be equal to or less than the authorised capital.
• Subscribed Capital (A): This is the part of the issued capital that the public or existing shareholders have agreed to take up or subscribe for. This amount can be equal to or less than the issued capital. If the entire issued capital is not subscribed by the public, the remaining part is not considered subscribed capital.
• Called-up Capital (E): This is the part of the subscribed capital that the company has formally asked the shareholders to pay. When shares are issued, the company may not ask for the full value of the share immediately. The amount called up is the portion of the subscribed value that the company requires the shareholders to pay.
• Paid-up Capital (D): This is the part of the called-up capital that the shareholders have actually paid to the company. This is the amount of money the company has actually received from its shareholders for the shares issued. Paid-up capital can be equal to or less than called-up capital (if some shareholders have not paid the amount called).

Logical Flow and Ordering of Share Capital

These different types of capital follow a logical sequence based on the process of issuing and raising funds from shares:

1. First, a company must establish the maximum limit of capital it can issue, which is the Authorised Capital.
2. Then, the company decides how much of this authorised capital it wants to offer to the public, which becomes the Issued Capital.
3. The public responds by agreeing to buy a certain portion of the offered shares, resulting in Subscribed Capital.
4. The company then demands a certain amount from the subscribers, which is the Called-up Capital.
5. Finally, the amount actually received from the shareholders against the call is the Paid-up Capital.

Therefore, the correct order is: Authorised Capital > Issued Capital > Subscribed Capital > Called-up Capital > Paid-up Capital.

Arranging the Given Capital Types

Based on the logical flow, we arrange the given types:

• (C) Authorised Capital: The starting point, the maximum allowed.
• (B) Issued Capital: The amount offered from the authorised limit.
• (A) Subscribed Capital: The amount taken up by the public from the issued amount.
• (E) Called-up Capital: The portion of subscribed capital demanded by the company.
• (D) Paid-up Capital: The portion of called-up capital actually received.

The correct order is (C), (B), (A), (E), (D).

Comparing this order with the given options, the sequence (C), (B), (A), (E), (D) matches option 3.

Revision Table: Share Capital Types Order

Additional Information on Share Capital Concepts

It's useful to understand a few related terms:

• Uncalled Capital: The part of the subscribed capital that has not yet been called up by the company. \( \text{Uncalled Capital} = \text{Subscribed Capital} - \text{Called-up Capital} \).
• Calls in Arrears: The part of the called-up capital that has not been paid by the shareholders. \( \text{Calls in Arrears} = \text{Called-up Capital} - \text{Paid-up Capital} \).
• Reserve Capital: A part of the uncalled capital that a company decides, by special resolution, not to call up except in the event of winding up of the company.
• Capital structure: Refers to the mix of a company's long-term sources of funds, including equity (like share capital) and debt.

Understanding the hierarchy and relationship between authorised, issued, subscribed, called-up, and paid-up capital is crucial for analyzing a company's balance sheet and financial health.