A limited liability company is a legal entity and the
existence of the limited liability companies
The owners of a limited liability company will be named as
“members” or “shareholders” of the company
Each company is governed by two documents, known as
the Memorandum of Association and the Articles of
Called up Capital
Issue of shares and debenture
Paid Up Capital
- at par
- at premium
- at discount
- Payable in full
- by instalments
Classification of Capital
Authorized Capital is the total number of shares and the total amount of Share
Capital which a limited liability company is allowed to issue and it is stated in the
Memorandum of Association. Authorized Capital may be changed and increased
to cope with the growth of the company by the approvals of the shareholder
Issued Capital is the part of the Authorized Capital actually issued to the
Called-Up Capital is the amount of the Issued Capital that the limited liability
companies request their shareholders to pay.
Paid-up capital is the actual amount received from the Called-Up Capital.
The amounts of the Called-Up Capital which has not yet been received will be named
as “Calls in Arrears”. „‟Calls in Advance”refers to the advance payment of the
Un-called Capital from the shareholders.
Types of Share Capital
A. Preference Shares
Preference shareholders are entitled to fixed % of dividends before any
ordinary dividends are paid.
No voting rights.
I) Cumulative preference shares
Any unpaid dividends on cumulative preference shares can be carried
forward to a later year.
II) Non-cumulative preference shares.
The unpaid dividends cannot be carried forward to later years.
B. Ordinary Shares
The dividends of ordinary shares are not fixed. They depend on the return of
Ordinary shareholders are paid only after all other claims have been met.
Ordinary shareholders usually have voting rights.
Raising of Capital-Issue of shares and
Issue at Par
The issue price is same as the “PAR”, “NOMINAL” or “FACE” value of the
shares and debentures.
Issue at a Premium
The issue price may be HIGHER than the par value of the shares and
The difference between the issue price and the par value of the shares or
debentures is named as “SHARE PREMIUM”
Issue at a Discount
The issue price may be LOWER than the par value of the shares and
The difference between the issue price and the part value of the shares or
debentures is named as “SHARE DISCOUNT‟
Methods of Payment
Payment in Full
Payable by instalments
Payment in full
The full amount of the issue price of the
shares and debentures should be paid to the
company on application whether or not the
applicants will allot the shares and debentures.
Payable by instalments
The full amount of the issue price of the shares and
debentures will be paid to the company by
instalmentsin following steps:
Receipt of application money
Return of application money to unsuccessful
Allotment of shares
Receipt of allotment money
Call on shares
Receipt of call money
We understand the basic concept of capital formation, how
company make(manage) huge capital and also know the
various type of the share. We understand the the difference
between cash payment & installment payment also
difference in capital.
For making the capital company issue the share at a certain
cost .Shareholder is the owner of the company. They provide
the capital to the company for dividend( interest / profit ) .
Shareholder have the voting rights and consequently control
the total affairs of the company.
Company invest that capital into the production activity &
make a profit , this profit distribute among the shareholder as
a dividend for their investment.