Read the passage carefully and answer the following questions.
XYZ Ltd is registered with an authorised capital of ₹20 lakh divided into 2 lakh equity shares of ₹10 each. The company is in manufacturing of pickles and spices. Due to the increase in demand of packed food in the market they decided to diversify its operation. For this purpose they decided to issue 1 lakh equity share of ₹10 each. The company issued 20,000 equity shares to a vendor to supply the machinery required to manufacture the packed food. Rest of the equity shares were issued to general public for subscription. The application were received for 46,000 equity shares. Due to undersubscription of equity shares the shares were not issued to public.
The following refer to the maximum amount of share capitals issued by a company in its life time except:
Answer & explanation
Correct answer: option 1
The correct answer is Option (1) → Subscribed Capital
The ceiling on the share capital a company may issue in its lifetime is fixed by its Memorandum of Association. That ceiling is the authorised capital, and the book gives it two other names: nominal capital and registered capital. The company can raise it only by changing the Memorandum.
Subscribed capital is a much smaller figure: it is only the part of the issued capital that the public has actually taken up. In the passage, XYZ Ltd is authorised for ₹20 lakh, but its subscribed capital is only what vendors and applicants have actually taken.
Option (2) Authorised Capital — The maximum capital. It is the amount the Memorandum allows the company to issue.
Option (3) Nominal Capital — Another name for the maximum capital. Nominal capital is the authorised capital under a different name.
Option (4) Registered Capital — Another name for the maximum capital. It is the capital with which the company is registered, that is, the authorised capital.
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