BAJAJ BROKING
July 29, 2025
4 mins read
When you start exploring how companies raise money and expand operations, you will often come across the term share capital. It plays a foundational role in any business that wants to raise funds by offering ownership to others. Share capital represents the amount a company collects from shareholders in exchange for equity shares. Whether you hold shares in a newly listed company or a long-established firm, understanding the workings of share capital helps you see how businesses operate behind the scenes. It reflects the financial structure and the extent of ownership distribution. This concept becomes even more relevant when you examine how a company grows, restructures, or takes strategic decisions, especially in the Indian corporate environment, where capital structuring is a regulated and transparent process.
Share capital is the money that a company receives by issuing shares to investors. This money becomes part of the company’s permanent capital and is used to fund everything from product development to business expansion. When you buy shares during an IPO or secondary offering, the funds you invest become part of the company’s share capital. It is a core component of a company’s equity, recorded on the balance sheet, and gives you certain rights such as voting or receiving dividends, depending on the share class. Share capital not only helps companies raise money without incurring debt but also gives shareholders a direct stake in the business. Over time, the amount of share capital can evolve as the company grows or issues new shares, but the principle remains the same—funding through ownership. It is one of the most vital indicators of how a business sustains and scales in a competitive market.
To illustrate how share capital works, let us take an example of a fictional company, DEF Ltd. Suppose DEF Ltd. has an authorised share capital of ₹100 crore as per its incorporation documents. Out of this, it decides to issue shares worth ₹40 crore to the public in an IPO. Investors, including you, subscribe and pay ₹35 crore. In this case, ₹100 crore remains the authorised capital, ₹40 crore is the issued capital, and ₹35 crore becomes the paid-in capital. This example shows how not all authorised capital is issued and not all issued capital may be fully paid at once. The process unfolds in stages, allowing the company to raise money in phases based on its business requirements. As a shareholder, you can use such information to assess how actively a company is leveraging its capital raising capacity and how successful it has been in securing funds from its equity base.
When you look at a company’s financial filings or corporate documents, you will likely find three key terms related to share capital—authorised share capital, issued share capital, and paid-in capital. These terms help you understand how much capital a company is legally permitted to raise, how much it has actually issued, and how much has been received from shareholders. Each of these plays a distinct role in defining a company’s capital structure and regulatory limits. As someone analysing a company for financial understanding, knowing the differences between these types allows you to evaluate how much room the company has for raising more capital, how committed the shareholders are, and how efficiently the company is managing its fundraising strategies.
Authorised share capital refers to the maximum value of shares that a company is legally allowed to issue, as stated in its incorporation documents. You will see this limit specified in the company’s Memorandum of Association, and it serves as a cap on how much equity funding the business can raise. This amount can be changed later through formal procedures, but until such changes are made, the company cannot issue shares beyond this authorised limit. For example, if a company has an authorised capital of ₹10 crore, it cannot issue shares exceeding this value unless it increases the limit through a shareholders’ resolution. Although authorised share capital does not involve actual cash flow, it provides a framework for how much ownership the company can offer to investors over time. You may think of it as a legal boundary that guides the company’s fundraising activities.
Issued share capital is the portion of the authorised share capital that the company has offered to investors. It reflects how much of the permitted capital has been formally put into the market for subscription. You may come across this during IPO announcements or rights issues, where companies declare how many shares they are issuing and at what value. It is not necessary for companies to issue their entire authorised capital at once—they often do it in phases based on funding needs. Issued share capital shows the company’s active engagement in raising money and expanding ownership. If you invest in such offerings, you become part of the issued capital structure. While it represents a commitment from the company to dilute ownership in exchange for funding, it does not automatically mean all shares are fully paid for. It is an essential indicator of the company’s financial mobilisation efforts.
Paid-in capital represents the actual funds received by the company from investors in exchange for the issued shares. It is the cash inflow that results once you and other shareholders subscribe to the offered shares and make the required payments. This capital is what the company uses for its business activities, including operations, development, and expansion. Unlike authorised or issued capital, paid-in capital reflects the real-time commitment of shareholders. It is shown in the equity section of the balance sheet and can include share premiums if the shares were issued at a price above their nominal value. When you invest in a company and pay for your shares, that money becomes part of its paid-in capital. This figure gives a true picture of how much funding the company has successfully secured from its equity base and how it is fuelling business growth through ownership-based financing.
When a company needs to raise funds without taking loans or issuing bonds, it turns to share capital issuance. This process allows a business to collect money from investors like you, in return for a share in ownership. It typically begins with the company deciding how many shares to issue and at what value, depending on its capital needs and market conditions. After securing the necessary regulatory approvals, the company makes a formal offering—either privately to institutional investors or publicly through an IPO. You may then subscribe to these shares and become a part-owner of the business. The funds raised are used for various purposes like purchasing assets, hiring talent, upgrading infrastructure, or developing new products. What makes share capital attractive for companies is that it does not require repayment, unlike debt, though it does lead to dilution of ownership. It is a key route for sustainable, long-term financing in many Indian businesses.
Companies often issue additional shares when they need more capital for expansion, reducing debt, or funding new projects. This can be done through rights issues, follow-on public offerings, or preferential allotments. When this happens, existing shareholders like you may be given the opportunity to purchase more shares, sometimes at a specific price or ratio. This process helps the company raise fresh capital without relying on external borrowing. However, if you choose not to subscribe, your ownership percentage may reduce—a phenomenon known as dilution. The process of issuing additional shares requires board approval, compliance with legal procedures, and sometimes a resolution passed by shareholders. It is a method used strategically by companies to keep growing while ensuring transparency in ownership changes. For you as a shareholder, understanding such issuances can help in tracking how your stake in the company might evolve over time based on corporate actions.
Understanding the concept of share capital helps you see how companies fund their operations, attract investors, and grow sustainably. Whether you are analysing a startup or an established listed firm, the details around authorised, issued, and paid-in capital give you a window into its financial structure. Knowing what share capital is equips you with better context about your role as a shareholder and what kind of financial contribution you are making to the company. These distinctions also help you understand how companies balance ownership distribution with funding needs. By recognising how share capital works and how it is reported, you can read financial documents more clearly and make sense of key business decisions involving equity.
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Issued share capital refers to the total value of shares a company has offered to investors. Paid-in capital is the actual money the company receives after investors make payments for those shares. If some shares are not fully paid for, the paid-in capital will be lower than the issued capital.
Authorised share capital acts as a cap on how much equity funding a company can raise. If a company wants to issue more shares than permitted under this limit, it must amend its incorporation documents and get approval from shareholders. Until then, it cannot raise funds beyond that threshold.
Yes, a company can increase its authorised share capital through a formal legal process. This usually involves passing a resolution at a general meeting, filing the necessary forms with the Registrar of Companies, and updating the Memorandum of Association to reflect the revised capital limit.
Issuing new shares increases the total number of shares in circulation. If you do not participate in the new issue, your percentage of ownership may reduce. This dilution affects voting rights and dividend entitlements, though the company benefits by raising funds without increasing debt.
Share capital appears under the equity section of the company’s balance sheet. It is recorded at face value, and any amount received over and above the face value is added as a share premium. This structure helps in understanding the actual funds raised from shareholders and the company’s equity strength.
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