Class 12 Accountancy Notes · GSEB
Share Capital Fundamentals
Share Capital Fundamentals — Revise the share, share capital and reserve concepts that every GSEB Class 12 Accountancy MCQ and VSQ is built on. GSEB Class 12 Commerce Accountancy notes.
Last updated: 29 Sep 2026
Notes
Share and Share Capital
Words marked with a dotted underline carry the question they usually appear in — tap them to reveal it.
A share is an asset which is movable and transferable — it shows exactly what fraction of the company its holder owns.?
Transferable
Sold or gifted like any other asset
Distinctive no.
Every share carries its own number
Ownership ratio
100 shares of 10,000 = 1% of the company
Think of it as a samosa stall divided into tickets
1. Preference share
Gives its holder a preferential right for dividend at a specified rate before any dividend is paid to equity holders, and a preferential right for repayment of capital before equity on liquidation.
Four types
- Cumulative / Non-cumulative — unpaid dividend arrears accumulate and are paid when profits allow / do not accumulate.
- Redeemable / Irredeemable — repaid at a stipulated period or on notice / only at liquidation. After the Companies Act 2013 a company limited by shares cannot issue irredeemable preference shares.?
- Participating / Non-participating — right to share surplus profit (and surplus capital on winding up) beyond the fixed rate / fixed rate only.
- Convertible / Non-convertible — convertible wholly or partly into equity as agreed / not convertible (usually non-convertible).
2. Equity share (ordinary share)
Any share that is not a preference share. Equity shareholders have voting rights, receive dividend only out of the profit remaining after preference dividend, and get their capital back only after preference capital has been returned on liquidation.
Equity share capital = principal share capital
Minimum face value ₹ 1? · common face values ₹ 1, ₹ 10, ₹ 100
Real world: Reliance Industries trades at a face value of ₹ 10, while many new-age issuers deliberately keep ₹ 1 so that one lot stays affordable for a first-time investor.
| Aspect | Preference Shares | Equity Shares |
|---|---|---|
| Rate of dividend | Fixed rate of dividend | Not fixed — varies with availability of profits |
| Arrears of dividend | On cumulative shares, arrears are paid against future profits | Cannot be accumulated; never paid later |
| Priority of dividend | Receive dividend before any equity dividend | Paid only after preference dividend |
| Priority of capital | Capital returned before equity on winding up | Paid only after preference capital is fully returned |
| Voting rights | No voting rights | Have voting rights |
| Participation in management | No right to participate in management | Full right to participate in managementA preference investor gets a steadier, smaller return; an equity investor gets the vote and the upside (and the downside). |
What your MCQ / VSQ tests here
Seven Types of Share Capital
Seven names, one staircase — click each card for the worked figure from the textbook.
The capital ladder
The maximum amount a company can raise by share capital in its lifetime. Stated in the memorandum of association at the time of registration; can be increased only by a special resolution.₹ 1,00,00,000 ÷ 10,00,000 equity shares of ₹ 10 eachThink of it as the ceiling a family fixes on an education fund — the most they will ever put in, written down before anything is spent.
The portion of authorised capital the company actually offers — full or part, as needed.7,00,000 × ₹ 10 = ₹ 70,00,000⭐ Issued ≤ Authorised, always. A shop worth ₹ 10 lakh never sells shares worth ₹ 12 lakh.
The value of shares for which applications are received. Can equal or be less than issued — even with over-subscription, allotment can never exceed issued capital.Real life: when a campus fest sells 500 tickets but 700 students apply, you still print only 500 — the subscribed figure that counts is the 500 you actually issue.
The amount the company has demanded so far from shareholders, up to face value.₹ 6 × 7,00,000 = ₹ 42,00,000Companies rarely ask for the full amount in one go — instalments keep it painless.
The part of subscribed capital not yet called = subscribed − called-up.₹ 10 − ₹ 6 = ₹ 4 per shareMoney the company can still ask for later — it sits on the books, not in the bank.
The amount actually received out of the called-up capital.₹ 42,00,000 − (1,000 × ₹ 2 missed) = ₹ 41,98,000A shareholder holding 1,000 shares misses a ₹ 2 call → paid-up drops to ₹ 41,98,000.
Uncalled capital that a special resolution converts into reserve capital — callable only at liquidation. The resolution cannot be cancelled.⭐ Not disclosed under the ‘Share Capital’ heading of the Balance Sheet (the notes show only authorised, issued and subscribed — less calls-in-arrears, plus forfeited shares).
Capital Reserve — the profit pot
Created out of capital profit, not day-to-day business income, and therefore not divisible as dividend.
- •Profit on sale of fixed assets.
- •Profit on revaluation of fixed assets.
- •Profit prior to incorporation.
- •⭐ Premium on issue of shares and debentures.
- •Profit on redemption of debentures.
- •⭐ Profit on re-issue of forfeited shares.
✗ Wrong way — the dividend mistake
A firm treats its capital reserve as spare cash and announces a cash dividend out of it. That is prohibited: capital reserve is a capital profit and can never be paid out as dividend.
✓ Right way: keep capital reserve for the five Section 52(2) uses below (bonus shares, writing off premium on redemption, buy-back, and so on).
MCQ traps
Securities Premium — Meaning and Uses
Points to keep in mind
Premium may be called with application, with allotment, with call — separately or together.
⭐ No legal restriction on the issue of shares at a premium.
Premium = capital profit, never revenue profit.
Shown under Equity & Liabilities → Reserves and Surplus → Securities Premium Reserve.
⭐ Cannot be utilised for payment of dividend in cash.
Real-life premium — the chai stall franchise
Writing off the preliminary expenses of the company.
Writing off expenses, commission or discount allowed on issue of shares or debentures.
Issuing fully paid bonus shares to shareholders.
Providing premium payable on redemption of redeemable preference shares.
Buy back of the company's own shares.
What your MCQ / VSQ tests here
Key Takeaways
Key Takeaways
- Share = transferable unit of share capital; it states the ownership ratio and carries a distinctive number — so a share certificate is simply proof of your slice of the canteen stall.
- Preference shares: fixed dividend, priority in dividend and capital, no voting. Equity shares: voting rights, residual dividend and residual capital.
- Seven capital types in order: authorised → issued → subscribed → called-up → (uncalled / paid-up) → reserve capital. Issued can never exceed authorised.
- ⭐ Reserve capital ≠ capital reserve — one is frozen uncalled capital, the other is a capital profit that can never be paid out as dividend.
- Securities premium: capital profit, no rate restriction, five Section 52(2) uses, and never dividend.
- MCQ 10’s answer (reserve capital) comes from what the notes to accounts disclose — authorised, issued and subscribed only.