What is Share Capital? Definition, Types & FY 2025-26 Rules
- 4th December 2025
- 12:00 AM
- 9 min read
This article covers the comprehensive definition and structure of Share Capital in the Indian context for FY 2025-26. We analyze the five critical types of capital—from Authorized to Paid-up—and explain where they appear in financial statements under Schedule III of the Companies Act, 2013. The guide also details the major tax shift effective October 2024, where share buybacks are now taxed as dividends in your hands, and highlights SEBI’s March 2025 amendments regarding promoter lock-in periods. You will find real-world examples, including Reliance Industries’ capital structure, to demystify these accounting terms.
Share capital is the lifeblood of any limited company, representing the money invested by owners in exchange for ownership rights. Unlike debt, which must be repaid with interest, share capital is a permanent source of funds used for business operations, expansion, or capital expenditure (Capex). For investors, understanding the nuances of share capital—specifically the difference between what a company can raise (Authorized) and what it has raised (Paid-up)—is crucial for evaluating stock dilution and promoter commitment. With the new FY 2025-26 tax rules changing how capital returns (buybacks) are taxed, this knowledge is now essential for tax-efficient portfolio planning.
Different Meanings of “Share Capital”
In the Indian financial market, “Share Capital” isn’t a single number. It changes based on context. When you read a company’s annual report or check data on the NSE website, you will encounter three distinct interpretations:
1. The Accounting Definition
In the books of accounts, share capital refers strictly to the face value of shares issued. For example, if a company issues 1 lakh shares at a face value of ₹10, the share capital is ₹10 lakh. The extra money collected (premium) goes into a separate “Securities Premium Account,” not share capital.
2. The Legal Definition
As per Section 2(84) of the Companies Act, 2013, share capital means “a share in the share capital of a company and includes stock.” It represents the bundle of rights and obligations—voting rights, dividend entitlement, and liability limited to the unpaid amount.
3. The Market Definition (Market Cap)
Investors often confuse share capital with Market Capitalization.
- Share Capital = Total Shares × Face Value (Fixed, changes only with corporate actions).
- Market Cap = Total Shares × Current Market Price (Fluctuates daily).
Pro Tip: A company like MRF has a small share capital (low number of shares) but a massive market capitalization due to its high share price.
Share Capital in Financial Statements
To find a company’s share capital, you need to look at its Balance Sheet. According to Schedule III of the Companies Act, 2013, every Indian company must disclose its capital structure in a specific format.
Where to look:
- Open the Balance Sheet.
- Locate the first main heading: “Equity and Liabilities”.
- Look under the sub-heading: “Shareholders’ Funds”.
- The first line item is “Share Capital”.
This section must disclose the number of shares, their face value, and a reconciliation of shares at the beginning and end of the year. It serves as the primary evidence of ownership distribution.
Types of Share Capital
Understanding the “waterfall” of share capital is vital. It starts with the maximum limit and flows down to the actual money in the bank. Here are the five types you must know:
1. Authorized (Nominal) Capital
This is the maximum amount of capital a company is legally allowed to raise, as stated in its Memorandum of Association (MOA). To raise more than this limit, the company must pay additional fees to the Registrar of Companies (ROC) and seek shareholder approval.
- Example: If a company’s MOA says Authorized Capital is ₹10 Crore, it cannot issue shares worth ₹11 Crore without amending the MOA.
2. Issued Capital
This is the portion of Authorized Capital that the company actually offers to the public or investors for subscription. Companies rarely issue their entire authorized capital at once; they keep a buffer for future needs.
- Example: Out of ₹10 Crore authorized, the company launches an IPO for ₹6 Crore. The Issued Capital is ₹6 Crore.
3. Subscribed Capital
This represents the part of Issued Capital that investors have agreed to buy.
- Fully Subscribed: Investors buy all ₹6 Crore shares.
- Under-Subscribed: Investors buy only ₹5 Crore (If under 90%, the IPO may fail as per SEBI norms).
- Over-Subscribed: Investors bid for ₹50 Crore (Common in hot IPOs like Tata Technologies).
4. Called-up Capital
In the past, companies asked for money in installments (Application, Allotment, First Call). Called-up capital is the amount the company has demanded so far.
- Note: In modern Indian markets, almost all shares are fully called-up at the time of issuance.
5. Paid-up Capital
This is the actual money received by the company from shareholders. This figure is included in the “Total Equity” of the company.
- Formula: Paid-up Capital = Called-up Capital − Calls in Arrears (Unpaid money).
| Type | Meaning | Key Constraint |
|---|---|---|
| Authorized | Max limit in MOA | Ceiling for all other types |
| Issued | Offered to investors | Cannot exceed Authorized |
| Subscribed | Investors agreed to buy | Cannot exceed Issued |
| Paid-up | Money actually received | Used for calculating Net Worth |
How Companies Raise Share Capital
Companies raise capital through various methods depending on their stage of growth and regulatory status. As of November 2025, here are the primary routes:
1. Initial Public Offering (IPO)
This is when a private company lists on exchanges (NSE/BSE) for the first time.
- Fresh Issue: New shares are created; money goes to the company.
- Offer for Sale (OFS): Existing promoters sell shares; money goes to promoters, not the company.
New SEBI Rule (March 2025): If an IPO raises funds primarily (>50%) for Capital Expenditure (Capex), the Minimum Promoters’ Contribution (20%) is now locked in for 3 years (previously 18 months). This ensures promoters stay committed to the project.
2. Follow-on Public Offer (FPO)
A listed company issues additional shares to the public to raise more funds. This dilutes the earnings per share (EPS) for existing shareholders.
3. Rights Issue
The company offers new shares to existing shareholders first, usually at a discount to the market price. This allows loyal investors to maintain their ownership percentage.
- Regulatory Update: As per SEBI ICDR amendments, the ₹50 crore threshold for rights issues is removed; all listed rights issues now follow strict disclosure norms.
4. Private Placement / Preferential Allotment
Shares are issued to a select group of investors (like Mutual Funds, QIBs, or HNIs) rather than the general public. This is faster but requires shareholder approval.
Example of Share Capital
Let’s look at a real-world example using Reliance Industries Limited (RIL) data for FY 2024-25 to visualize the hierarchy.
Reliance Industries Capital Structure (FY 2024-25 Data):
- Authorized Capital: ₹50,000 Crore
- Breakdown: 4,900 Crore Equity Shares of ₹10 each + 100 Crore Preference Shares of ₹10 each.
- Meaning: RIL can theoretically raise up to ₹50,000 Cr face value without going back to shareholders to change the MOA.
- Issued, Subscribed & Paid-up Capital: ~₹6,766 Crore
- Context: Following the 1:1 bonus issue in FY 2025, RIL allotted approximately 676.6 crore equity shares.
- Meaning: This is the actual face value capital sitting in the company’s books.
- The Gap:
- Authorized (₹50,000 Cr) > Paid-up (₹6,766 Cr).
- This huge gap gives RIL the flexibility to issue more bonus shares or raise fresh capital in the future without administrative hurdles.
Data Source: Reliance Industries Integrated Annual Report 2024-25.
Conclusion
Share capital is more than just an accounting entry; it is the structural foundation of your equity ownership. Whether you are analyzing a blue-chip like Reliance or a new IPO, understanding the distinction between Authorized and Paid-up capital helps you gauge a company’s fundraising flexibility. However, the game rules have changed in FY 2025-26. With the new buyback taxation turning capital returns into taxable dividends, your strategy for participating in corporate actions must evolve. Always verify the “Class of Share Capital” (Equity vs Preference) before investing to ensure you get the voting rights you expect.
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FAQs on Share Capital
1. What is the difference between Authorized and Paid-up Capital?
Authorized capital is the maximum value of shares a company can legally issue as per its MOA. Paid-up capital is the actual amount of money the company has received from shareholders. Paid-up capital can never exceed Authorized capital.
2. How is Share Capital calculated in the Balance Sheet?
It is calculated as the total number of shares issued multiplied by the face value per share. For example, 1,000 shares at ₹10 face value = ₹10,000 Share Capital. Any extra amount paid (e.g., ₹500 premium) goes to Reserves, not Share Capital.
3. What are the types of Share Capital in India?
The five main types are: Authorized (Max limit), Issued (Offered to public), Subscribed (Agreed by investors), Called-up (Demanded by company), and Paid-up (Actually received). Most Indian companies today have fully paid-up capital.
4. What is an example of Share Capital?
If ABC Pvt Ltd has an Authorized Capital of ₹10 Lakh and issues 50,000 shares of ₹10 each to founders, its Paid-up Capital is ₹5 Lakh. It can still issue another ₹5 Lakh worth of shares in the future without changing its MOA.
5. How are share buybacks taxed in FY 2025-26?
As of October 1, 2024, the tax on share buybacks has shifted from the company to the shareholder. The entire buyback amount is taxed as dividend income at your applicable income tax slab rate. The cost of acquisition becomes a capital loss.
Investment in securities market are subject to market risks. Read all the related documents carefully before investing. The information provided is for educational purposes only and does not constitute financial advice. Tax laws are subject to change; please consult a tax advisor for specific implications. Data cited regarding Reliance Industries is from FY 2024-25 public disclosures.
