Share capital: meaning, types and how it is shown
Share capital is money a company raises by issuing shares. It splits into equity and preference capital, tracked as authorised, issued and paid-up.
Short answer
Share capital is the money a company raises by issuing shares to its members. Under the Companies Act, 2013 it comes in two kinds, equity share capital and preference share capital, and is described at different levels: authorised, issued, subscribed and paid-up. It is the owners' permanent stake and appears first under equity in the balance sheet.
- Kinds
- Equity and preference (section 43)
- Preference redemption
- Within 20 years of issue (section 55)
- Shown in
- Notes to the balance sheet under Schedule III
Types of share capital
Equity shares carry voting rights and a residual claim on profits and assets. They may be issued with differential voting rights if the rules are met. Preference shares carry a preferential right to dividend and to repayment of capital on winding up, but usually limited voting rights. Under section 55, a company cannot issue irredeemable preference shares, and they must generally be redeemed within 20 years.
Levels of share capital
These four terms often confuse new founders because the same company can show different figures for each. It helps to see them together, from the widest ceiling down to the money actually received.
- Authorised: the ceiling set in the MoA
- Issued: the part offered for subscription
- Subscribed: the part members have agreed to take
- Paid-up: the part actually paid, including amounts credited as paid
Why it matters for startups
Most Indian startups issue equity to founders and later issue compulsorily convertible preference shares to investors. Under FEMA, fully and mandatorily convertible preference shares count as equity instruments, so they can be issued to foreign investors under the FDI rules. Partly convertible or optionally convertible instruments are treated as debt and fall under the borrowing rules instead.
Every change in share capital, whether an allotment, transfer or conversion, needs board or shareholder approval and an ROC filing, so keep the register of members and cap table in step.
Related services
Sources
- India Code: official repository of central Acts
- Ministry of Corporate Affairs (MCA) portal
- Reserve Bank of India: FEMA master directions
Written by the Refogo Editorial Team from the official sources above and checked on 2026-10-31. Laws, rates and due dates change, and authorities often extend deadlines, so confirm your own case with a qualified professional. This is general information, not legal or tax advice. Read our editorial policy or report an error to support@refogo.com.
Common questions
What is the difference between share capital and equity?
Share capital is the face value of shares issued. Total equity, or net worth, adds reserves such as securities premium and retained earnings to share capital.
Can a private company issue preference shares?
Yes, if its articles allow it. The issue needs a special resolution and the shares must be redeemable within the limits of section 55.
Is share capital taxable income for the company?
Money received for issuing shares is a capital receipt, not income. The former angel tax on share premium was abolished from tax year 2024-25 onwards.