Fundamentals of Accounting · Introduction to Company Accounts

Share Capital and Types of Shares for CSEET

Updated 11 October 2026 · Fact-checked

Share capital is the money a company raises by issuing shares. It is classed as authorised, issued, subscribed, called-up and paid-up capital. Shares are of two kinds: equity and preference. To solve questions, start from authorised capital and move down step by step, subtracting at each stage.

Understand Share Capital and Types of Shares

A company raises money from the public and other investors by dividing its capital into small units called shares. Each holder of a share is a part-owner of the company. The total money raised this way is the share capital.

Share capital is described in stages. Authorised capital is the maximum capital the company may issue, as stated in its memorandum. Issued capital is the part of it actually offered to investors. Subscribed capital is the part of the issued capital that investors have agreed to take. Called-up capital is the part of the subscribed capital the company has asked shareholders to pay. Paid-up capital is the part of the called-up amount actually received. The amount not yet asked for is uncalled capital, and the called amount not yet received is calls in arrear.

The order always narrows down: Authorised ≥ Issued ≥ Subscribed ≥ Called-up ≥ Paid-up. Think of a bucket that can hold 100 litres (authorised), of which you offer 80 (issued), people take 70 (subscribed), you ask them to pay for 60 (called-up), and 55 actually arrives (paid-up). Here we assume the shares are fully taken up; if the public takes more than offered, the company allots only up to the issue.

Under Section 43 of the Companies Act, 2013, the share capital of a company limited by shares is of two kinds: equity share capital and preference share capital. Equity share capital means all share capital that is not preference share capital. Equity shares may carry voting rights, or differential rights as to dividend, voting or otherwise as per the rules.

Preference share capital carries a preferential right over equity in two things: payment of dividend (a fixed amount or at a fixed rate) and repayment of capital on winding up. Equity holders get what is left, so they bear more risk and may earn more. Preference shareholders get a fixed return first, but have limited voting rights.

Key rules to remember

Order of share capital: Authorised ≥ Issued ≥ Subscribed ≥ Called-up ≥ Paid-up; Each stage is a part of the one before it. Use it to check your answer.
Unissued capital: Unissued capital = Authorised capital − Issued capital; This is the part the company has not yet offered.
Uncalled capital: Uncalled capital = Subscribed capital − Called-up capital; Money the company has not yet asked shareholders to pay.
Calls in arrear: Calls in arrear = Called-up capital − Paid-up capital; Called but not yet received. Paid-up = Called-up − Calls in arrear.
Equity share capital: Equity share capital = All share capital that is not preference share capital (Section 43); It is defined by exclusion.
Preference share capital: Preferential right to (a) dividend at a fixed amount or rate and (b) repayment of capital on winding up (Section 43); Both rights are part of the definition.
Redemption of preference shares: No irredeemable preference shares; redeemable within 20 years if articles authorise (Section 55); Infrastructure projects may exceed 20 years, subject to prescribed conditions.
Voting of preference holders: Vote only on resolutions affecting their rights, winding up, or repayment or reduction of capital (Section 47(2)); They vote on all resolutions if the dividend is unpaid for two years or more.

How to solve Share Capital and Types of Shares questions

Use this method for numerical questions on classes of capital and for theory questions on equity and preference shares.

1Read the question and list every figure given: authorised, issued, subscribed, called, paid, and the face value per share.
2Convert share numbers into rupees by multiplying by the face value, or the reverse, so all figures are in the same unit.
3Write the five stages in order, from authorised down to paid-up, and fill each one with its figure.
4Find the missing figure using the formulas: unissued, uncalled, calls in arrear.
5Check that each stage is not larger than the one above it. If it is, recheck your reading.
6For theory questions, define the term, give its main features, then add a short contrast point. Use the Section 43 wording for equity and preference.
7Show a short working note in the answer, since written papers award marks for steps.

Quickest way: Waterfall list method

When to use it: Use it when a question gives several figures and asks for one or two of them, and time is short.

Draw five lines in a column: Authorised, Issued, Subscribed, Called-up, Paid-up.
Write the given figures against the right lines.
Take the difference between two neighbouring lines to get the missing item.
For paid-up, subtract calls in arrear from called-up.
Do a one-line check that the column never increases as you go down.

Common mistakes in Share Capital and Types of Shares

Treating issued capital as the same as authorised capital.
Both sound like total capital, so students use them interchangeably.
Fix: Remember authorised is the ceiling. Issued is only what has been offered. The difference is unissued capital.
Writing paid-up capital equal to called-up capital when calls are unpaid.
Students forget calls in arrear.
Fix: Always compute Paid-up = Called-up − Calls in arrear.
Mixing up uncalled capital and unpaid capital.
Both mean money not yet received.
Fix: Uncalled is not yet demanded. Calls in arrear is demanded but not paid.
Using the number of shares instead of rupees.
The question gives shares and face value, and students rush.
Fix: Multiply shares by face value (and by the amount called per share) before comparing figures.
Saying preference shareholders never vote.
Students remember that voting rights are limited and stretch it.
Fix: Under Section 47(2) they vote on resolutions affecting their rights, winding up, and repayment or reduction of capital. If dividend is unpaid for two years or more, they vote on all resolutions.
Saying a company can issue irredeemable preference shares.
Older books and general knowledge about preference shares are mixed up.
Fix: Under Section 55(1) a company limited by shares cannot issue irredeemable preference shares. They must be redeemable within the permitted period.

Worked examples

Example 1

Rohan Textiles Ltd has an authorised capital of 2,00,000 equity shares of ₹10 each. It issued 1,50,000 shares, of which 1,40,000 were subscribed. ₹8 per share was called up on the subscribed shares. Shareholders failed to pay ₹1 per share on 2,000 shares. Find the authorised, issued, subscribed, called-up and paid-up capital and the uncalled capital.

Show the solution

Authorised capital = 2,00,000 × ₹10 = ₹20,00,000.
Issued capital = 1,50,000 × ₹10 = ₹15,00,000.
Subscribed capital = 1,40,000 × ₹10 = ₹14,00,000.
Called-up capital = 1,40,000 × ₹8 = ₹11,20,000.
Calls in arrear = 2,000 × ₹1 = ₹2,000.
Paid-up capital = ₹11,20,000 − ₹2,000 = ₹11,18,000.
Uncalled capital = ₹14,00,000 − ₹11,20,000 = ₹2,80,000.

Answer: Authorised ₹20,00,000; Issued ₹15,00,000; Subscribed ₹14,00,000; Called-up ₹11,20,000; Paid-up ₹11,18,000; Uncalled ₹2,80,000.

Example 2

Distinguish between equity shares and preference shares with reference to dividend, repayment on winding up, voting rights and redemption.

Show the solution

Define: Under Section 43, preference share capital carries a preferential right to a fixed dividend and to repayment of capital on winding up. Equity share capital is all share capital that is not preference share capital.
Dividend: Preference shares get dividend at a fixed amount or rate, paid before equity. Equity dividend is not fixed and depends on profits and the board's recommendation.
Winding up: Preference capital is repaid before equity capital. Equity holders are paid last from what remains.
Voting: Equity holders can vote on every resolution (Section 47(1)). Preference holders vote only on resolutions affecting their rights, winding up, or repayment or reduction of capital. They vote on all resolutions if dividend is unpaid for two years or more (Section 47(2)).
Redemption: Irredeemable preference shares cannot be issued. They must be redeemable within a period not exceeding twenty years, if the articles authorise (Section 55). Equity shares are not redeemed in the ordinary course during the life of the company.

Answer: Preference shares have fixed dividend, priority in repayment, limited voting and must be redeemable. Equity shares have variable dividend, are paid last, carry full voting rights and are not redeemable in the ordinary course.

Exam tips

Numerical questions usually give shares and face value. Convert to rupees first and show each stage on its own line.
Learn the exact order of the five stages. A one-line definition of each earns easy marks in short-answer questions.
For the equity versus preference question, write at least four points in a two-column style list: dividend, repayment, voting, redemption.
Quote the Section 43, 47 and 55 rules in plain words. Do not quote other section numbers unless you are sure of them.
Keep ten minutes at the end to check that paid-up is not more than called-up and called-up is not more than subscribed.

Practice questions from Introduction to Company Accounts

Share Capital and Types of Shares in other exams

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

Share Capital and Types of Shares: frequently asked questions

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

Called-up capital is the amount the company has asked shareholders to pay. Paid-up capital is the amount actually received. The difference is calls in arrear.

What is uncalled capital?

It is the part of subscribed capital that the company has not yet asked shareholders to pay. The company may call it later, in instalments as per the terms of issue.

What are the two kinds of share capital under the Companies Act, 2013?

Section 43 says the share capital of a company limited by shares is of two kinds: equity share capital and preference share capital. Equity share capital includes shares with voting rights or with differential rights as to dividend, voting or otherwise.

Can a company issue irredeemable preference shares?

No. Section 55(1) bars a company limited by shares from issuing irredeemable preference shares. Redeemable ones can be issued if the articles authorise, and they must be redeemed within twenty years, with a longer period allowed for infrastructure projects.