12.5.5 Structure of Share Capital

The amount of authorized capital and its subdivision into equity and preference share capital is given in the Memorandum of Association which is prepared before the certificate of incorporation is obtained. After obtaining the certificate of incorporation and before the issue of prospectus, the Board of directors have to take a decision regarding the total amount of capital which is to be raised by issue of shares and kinds of shares to be issued. A company cannot issue capital exceeding the authorised capital mentioned in the memorandum. How much capital should be raised at a particular time?  It depends upon a number of factors, such as the purpose for which the capital is required (whether for acquiring fixed assets like plant and machinery, etc., or for providing additional working capital); the alternative sources of raising capital (e.g., debentures, public financial institutions and so on)' The directors should also decide about the ratio of equity to preference share capital. For certain Purposes the Central Government has fixed this ratio at 3:1.Also, the amount of capital in each category, i.e., equity and preference and the amount to be called up at the time of application, allotment, etc., are to be decided. Also, the Board of directors have to decide about the type of preference shares to be issued.