The nominal/authorized share capital of a company refers to the designated or assigned share capital of a company. The allotted share capital of a company denotes the amount of share capital that has been allotted by a company at any time.
During formation of a company, the members ought to pay funds in respect to the shares allotted to them at par value of each share equivalent to the total number of shares allotted to them. The amount paid up in respect of the par value of shares represents a company’s paid up share capital. When a company allots ordinary shares for cash at their par value, this will be recorded as an increase in the company’s current assets and share capital.
Shares may be allotted to members on a partly or nil paid basis, however, the shareholder retains the liability to pay the company the amounts due in regard to the shares allotted to them.
The payment dates in respect unpaid shares may be set by the terms of allotment or the company’s memorandum and articles of association, alternatively, it may be rest upon the discretion of the directors to call for payment in accordance with the articles.
A company may opt to issue all its share capital or leave some unallocated share capital to incorporate investors on a need basis. The company may increase its share capital to allow allotment of further shares to existing shareholders or new investors.
There are different types of shares that can be allotted to members of a company. Majority of companies issue standard ordinary shares to keep things simple by offering equal rights and responsibilities to all shareholders. It is possible to issue different types of shares when the owners wish to distinguish the value of their shares and the various rights attached to them. Including ordinary shares, preference shares and redeemable preference shares as discussed;
a. Ordinary Shares
Ordinary shares denote shares which have no special rights attached to them. The rights normally attached to these shares include voting rights, dividend rights and capital rights. The ordinary shareholders have residual rights of the company.
b. Preference Shares
A preference share carries a preferential right of certain owners to receive a fixed percentage of dividends and a right to capital distribution before others. In the event of winding up, the preferential shareholders have a preferential right to the repayment of the paid up capital. As a result, they often carry no voting rights.
c. Management Shares
These carry smaller nominal value than other classes and or provide multiple voting rights. They are often held by the original members as a way to retain more control of the business than newer members.
d. Alphabet Shares
These are usually ordinary shares that are divided into different sub classes, such as ‘A’, ‘B’ and ‘C’. This allows a company to vary the percentage of each prescribed particular for example a company has two owners; they each hold one share but contribute different amounts of capital to the business. One owner is given 50% voting rights, 50% dividend rights and 70% capital rights. The other owner is given 50% voting rights, 50% dividend rights and only 30% capital rights to reflect his or her smaller capital contribution upon company formation.
e. Redeemable Shares
These are shares issued on terms that the company will, or may, buy them back at some future date. The date may be fixed for instance that the shares shall be redeemed five years after they are issued or at the directors’ discretion. The redemption price is often the same as the issue price, but need not be. The main requirement being that the company may only redeem the shares out of the accumulated profits or the process of a fresh issue of shares.
For more information in structuring your company’s capital/shares send a mail to firstname.lastname@example.org.