Company Law and Practice · Share and Share Capital - Concepts

Meaning and Nature of Shares and Share Capital

Updated 11 October 2026 · Fact-checked

A share is a unit of a company's share capital that gives its holder a measure of ownership, rights and liability. It is movable property, transferable as the articles allow. Share capital is described as authorised, issued, subscribed, called-up and paid-up. Know each term and how they relate: paid-up is never above subscribed, and subscribed is never above issued.

Understand Meaning and Nature of Shares and Share Capital

A company needs money to start and run. It raises part of it by dividing its capital into small units called shares. A person who takes shares becomes a member and owns a fractional interest in the company. The company is a separate legal person, so the shares belong to the member, not the company's assets to the member.

A share is not a claim over any specific asset of the company. It is a bundle of rights and liabilities: the right to dividend when declared, to vote (for equity), to share in surplus on winding up, and the liability to pay the unpaid amount on the share. It is a movable property, transferable in the manner provided by the articles and the Act. This is the nature of a share that exam questions test.

Share capital is the total money raised or to be raised through shares. It is seen in layers. Authorised (nominal or registered) capital is the maximum the memorandum allows the company to issue. Issued capital is the part actually offered to the public or others. Subscribed capital is the part of the issued capital that investors have taken up. Called-up capital is the part of the face value the company has asked members to pay. Paid-up capital is the amount actually received. Whatever remains uncalled is reserve capital only if the company resolves by special resolution that it will not be called except on winding up.

The layers move in one direction. Authorised is the ceiling. Issued cannot exceed it. Subscribed cannot exceed issued. Paid-up cannot exceed called-up, and called-up cannot exceed subscribed. A company can change its capital, but only as the law permits: sections 61 (alteration, including increase of authorised capital, if the articles authorise it) and 66 (reduction, with Tribunal confirmation) govern this. Section 62 governs further issue of shares to existing shareholders first.

Key rules to remember

Order of capital layers: Paid-up capital ≤ Called-up capital ≤ Subscribed capital ≤ Issued capital ≤ Authorised capital; Each layer is a part of the one before it. Use this to test any numerical or theory answer.
Uncalled capital: Uncalled capital = Subscribed capital − Called-up capital; Calls in arrear are part of called-up but not paid-up.
Paid-up capital: Paid-up capital = Called-up capital − Calls in arrear; Paid-up is what has actually been received on the shares.
Nature of a share: Share = movable property, transferable as per articles and the Act; It is a bundle of rights and liabilities, not a claim over specific assets.
Section 61(1) alteration powers: Increase authorised capital; consolidate; convert into stock; sub-divide; cancel unissued shares; Needs authority in the articles and a general meeting resolution. Cancelling unissued shares is not a reduction (section 61(2)).
Section 66 reduction: Special resolution + Tribunal confirmation; Not allowed if the company is in arrears in repaying deposits or interest on them.

How to solve Meaning and Nature of Shares and Share Capital questions

Use this method for definition, nature and capital-terms questions.

1Read the question and mark whether it asks for meaning, nature, or capital classification.
2Define a share in one line: a unit of share capital giving the holder rights and liabilities in the company.
3State its nature: movable property, transferable under the articles, a bundle of rights and liabilities, and not a claim on specific company assets.
4For capital terms, define each layer in order from authorised to paid-up, one line each.
5For numbers, write the order of layers and compute uncalled capital and paid-up capital step by step.
6If alteration or reduction is raised, cite section 61 or section 66 with its condition.
7End with a clear conclusion that answers exactly what was asked.

Quickest way: Layer ladder method

When to use it: Use when you have little time or a numerical on authorised, issued, subscribed, called-up and paid-up capital.

Draw a five-step ladder: Authorised, Issued, Subscribed, Called-up, Paid-up.
Fill in the given figures at the right steps.
Check that each step is not higher than the one above it.
Compute the missing figure: uncalled = subscribed − called-up; paid-up = called-up − calls in arrear.
Write the definition of each layer in one line beside the numbers.

Common mistakes in Meaning and Nature of Shares and Share Capital

Treating authorised capital as money the company has actually raised.
The word 'capital' suggests funds in hand.
Fix: Remember authorised capital is only the ceiling stated in the memorandum. Money raised is shown by paid-up capital.
Saying a share is a claim on the company's assets.
Students confuse ownership of shares with ownership of the company's property.
Fix: Write that the company is a separate person and the share is a movable property giving rights and liabilities, not title to specific assets.
Writing paid-up capital as higher than subscribed capital.
Students forget the ladder order or mix called-up with paid-up.
Fix: Always check Paid-up ≤ Called-up ≤ Subscribed ≤ Issued ≤ Authorised.
Forgetting to deduct calls in arrear when finding paid-up capital.
Called-up and paid-up are used as if they mean the same.
Fix: Use Paid-up = Called-up − Calls in arrear, and show the working.
Calling cancellation of unissued shares a reduction of capital that needs Tribunal approval.
Students mix section 61 and section 66.
Fix: Cite section 61(1)(e) and 61(2): cancelling shares not taken or agreed to be taken is not a reduction. True reduction under section 66 needs a special resolution and Tribunal confirmation.
Stating that alteration of capital is always allowed by a simple general meeting resolution.
The conditions in section 61 are skipped.
Fix: Mention that the articles must authorise the alteration, and that a consolidation changing voting percentages needs Tribunal approval.

Worked examples

Example 1

A company has authorised capital of ₹50,00,000 divided into 5,00,000 equity shares of ₹10 each. It issues 4,00,000 shares, and the public subscribes to 3,60,000 shares. The company calls ₹8 per share on the subscribed shares, and receives all of it except ₹16,000 on calls in arrear. Find issued, subscribed, called-up and paid-up capital.

Show the solution

Issued capital = 4,00,000 × ₹10 = ₹40,00,000.
Subscribed capital = 3,60,000 × ₹10 = ₹36,00,000.
Called-up capital = 3,60,000 × ₹8 = ₹28,80,000.
Paid-up capital = ₹28,80,000 − ₹16,000 = ₹28,64,000.
Uncalled capital = ₹36,00,000 − ₹28,80,000 = ₹7,20,000.
Check the ladder: 28,64,000 ≤ 28,80,000 ≤ 36,00,000 ≤ 40,00,000 ≤ 50,00,000. It holds.

Answer: Issued ₹40,00,000; subscribed ₹36,00,000; called-up ₹28,80,000; paid-up ₹28,64,000; uncalled ₹7,20,000.

Example 2

Explain the nature of a share. Can a company cancel shares that it has not issued, and does this need Tribunal confirmation?

Show the solution

Provision: A share is a unit of a company's share capital giving the holder rights and liabilities. It is movable property, transferable as provided in the articles and the Act.
Analysis of nature: The company is a separate legal person. A shareholder therefore has no title to the company's specific assets. The share is a bundle of rights, such as dividend, voting for equity and share in surplus on winding up, and of liability to pay any unpaid amount.
Provision on cancellation: Under section 61(1)(e), a limited company with share capital, if authorised by its articles, may in general meeting alter its memorandum to cancel shares that have not been taken or agreed to be taken by any person at the date of the resolution, and diminish its share capital by that amount.
Section 61(2) states that such cancellation is not deemed a reduction of share capital.
Section 66 (special resolution and Tribunal confirmation) applies to reduction of share capital, so it does not apply to this cancellation.

Answer: A share is movable property and a bundle of rights and liabilities, not a claim on specific assets. A company authorised by its articles may cancel shares not taken or agreed to be taken under section 61(1)(e). Under section 61(2) this is not a reduction, so Tribunal confirmation under section 66 is not needed.

Exam tips

Define in this order: share, nature, then capital terms. ICSI answers reward a clear structure: provision, analysis, conclusion.
For a short note on share capital, list all five layers with a one-line meaning each. Add one numerical illustration if time allows.
In distinction questions on authorised and paid-up capital, give at least four points: meaning, limit or ceiling, source of money, and effect on the balance sheet.
Always cite section 61 for alteration and section 66 for reduction with their exact conditions. Do not mix them.
Show the working in numerical questions. Marks are given for each correct layer even if one figure is wrong.

Practice questions from Share and Share Capital - Concepts

Meaning and Nature of Shares and Share Capital in other exams

The same ground in other exams, if you are preparing for more than one or want another angle on it.

Meaning and Nature of Shares and Share Capital: frequently asked questions

What is a share under the Companies Act, 2013?

A share is a share in the share capital of a company and includes stock. It gives the holder rights and liabilities in the company. It is movable property, transferable as the articles allow.

What is the difference between authorised capital and paid-up capital?

Authorised capital is the maximum capital the memorandum permits the company to issue. Paid-up capital is the amount actually received from shareholders on the shares. Paid-up capital can never be more than authorised capital.

Can a company increase its authorised capital?

Yes. Under section 61(1)(a), a limited company with share capital may increase its authorised share capital in general meeting, if its articles authorise it. It must alter its memorandum accordingly.

Is cancelling unissued shares a reduction of share capital?

No. Section 61(2) says cancellation of shares not taken or agreed to be taken under section 61(1)(e) is not a reduction. A reduction under section 66 needs a special resolution and Tribunal confirmation.