Classification of capital:The capital of the company is money subscribed by t he shareholders. The share capital is described in different ways which in brief are as follows:-
1- Nominal or authorized capital: nominal or authorized capital is the amount of capital with which a company intends to be registered. The nominal capital is described in the units of shares of definite face values.
2- Issued capital: issued capital of the company is that part of the nominal capital which is offered to the public far subscription in the form of shares.
3- Called up capital: called up capital is the amount on the shares which is actually demanded by the company.
4- Paid up capital: the paid up capital is that part of the issued capital which has actually been paid up by the shareholders.
5- Reserve capital: this is the part of the capital which a company is not authorized to call up during its life time.
6- Capital assets: these are actually the property of the company. The entire capital of the business irrespective of its size and form of ownership is divided into two categories:
a) Fixed capital; as the name signifies is the funds required for the purchase of fixed assets of a business.
b) Working capital: it is also called floating or circulating capital is required for meeting operating costs.
In simple words the term capital means the amount of money invested by the owner in the business to start a business. In case of Joint Stock Company the term share capital refers to the amount of money raised by the issue of shares.
Kind of Capital:
The authorized capital is also called nominal or registered. This is the maximum amount of capital which a company is authorized to issue. The amount of authorized capital is mentioned in the capital clause of memorandum of association along with its division into shares of fixed amount.
Issued capital is that part of authorized capital which is offered to the public for subscription or for the sale of shares. For example, if the authorized capital of a company is 10 Million and the company issues shares valuing 7 million $ then the issued capital of the company is 7 million $.
The Portion of the authorized capital, which is not offered to the public for the sale of shares are known as un-issued capital. In the above example the un-issued capital of the company is 3 million $.
The part of the subscribed capital, which in fact the company asks the shareholders to pay, is called the called up capital.
Talking about Circulating capital or working capital is the funds which are invested in current assets of a business. The current assets of a firm are cash on hand, demand deposits, readily marketable securities, inventories of goods and accounts receivable. Circulating capital is also sometimes called revolving capital because of the constant turn over of funds. The working capital is required for the purchase of raw material, salaries, wages, rent and other day to day expenditure.
The circulating capital required by a firm depends upon a number of factors such as nature of business, rapidity of turn over period, length of period of manufactures, etc. in retailing services, for instance, the working capital can be rapidly recovered by the sale of goods. The requirements of working capital are, therefore, rather small in this business. A manufacturing concern, on the hand, has a slower turnover of circulating capital. Therefore, it needs larger amount of working capital to carry on business. In banking, the requirements of funds for working capital are very high.
Short term financing is better suited to satisfy the circulating capital needs of a business, short term debt financing includes debts which have a maturity date of less than one year. It may here be noted that there is a minimum level of working capital current assets which is always needed by a firm during periods of an operating cycle. This can be called as permanent investment of the firm in current assets. The funds needed above this permanent level du8ringa year may be regarded at temporary needs.
The nature of words the capital means a particular amount of money with which a business is started. In case of company, the term share capital refers to the amount of money raised by issue of shares.
Kinds of capital,Authorized capital is the maximum amount of share capital, which a company is authorized to issue. The full amount or part of it can be issued for subscription and the balance can be issued whenever the need arises. Issued capital is not necessary for a company to issue all its authorized capital to the public for sale. Subscribed capital is not necessary that the public may purchase all the capital issued by the company. Called up capital is generally, the companies do not ask to the shareholders to pay the full amount of share at once. They take it in installments.
Paid up capital is that part of called up capital, which is actually received by the company in the form of cash, If some share holders could not pay all the money of called up capital the amount remaining in arrears is called the calls in arrears. Reserve capital is that part of the uncalled capital which the company has by a special resolution decided not to call up, until the company is wound up. A company can obtain the redeemable capital by issuing participation term certificate and other security not based in interest other than ordinary share of a company.
The assets invested in the business by the owner is termed as capital.
Registered capital:- the maximum amount which is registered with the registrar of the company.
Issued capital:- the part /entire registered capital which is issued to the public.
Paid up capital:- the capital which is paid by the public
called up catal:- the part of capital which is payabe ( has not not been paid) by the public.
There are two kinds of financial of capital requirements of a business. One of them is the capital which is required by a business to own durable assets such as building, land and machinery. This type of capital is called fixed capital or startup capital. The second capital is required for investment in short term assets such as purchase of raw material, payment of salaries, wages and rents. The capital is termed as current or working capital. Fixed capital as the name signifies is the fund which is used for meeting the permanent or long term needs of the business. Before a business is carried out the long term needs of a business are land, building, equipments and other sundry expenses.
Circulating or working capital is the fund which is invested in current assets of a business. The current assets of a business are cash on hand, current deposits, readily marketable securities, inventories of goods and accounts receivable. Circulating capital is also sometimes called revolving capital because of the constant turn over of funds. The working capital is required for the purchase of raw material, salaries, wages and other day to day expenses. So this is also called operating capital or working capital for the business.