Different Types of Share Capital

In the context of a public limited company, share capital refers to the funds raised by the company through the issuance of shares to its shareholders. These shares represent ownership stakes in the company, and the capital raised from them is used to fund operations, investments, and expansions. There are several types of share capital, each serving a specific role in the financial structure of the company. Below, we will explore the different types of share capital, their significance, and the role they play in a company’s financial framework.

1. Authorised Share Capital

Authorised Share Capital (also known as Registered Capital) is the maximum amount of capital that a company is legally permitted to raise by issuing shares to its shareholders. It represents the total value of shares that a company can issue, as set out in its memorandum of association or articles of association at the time of its incorporation.

For example, if a company’s authorised share capital is set at $10 million, it can issue shares worth up to $10 million. However, this amount does not mean that the company must issue all the shares at once. It merely sets a ceiling for the company's ability to issue shares in the future.

The authorised capital can be changed if necessary, but doing so requires legal formalities, such as obtaining shareholder approval through a special resolution and filing the necessary documentation with the relevant corporate or regulatory authorities. If the company requires additional capital beyond its authorised share capital, it would need to increase the authorised capital.

The concept of authorised capital provides a company with the flexibility to issue more shares when needed, without having to amend the company’s fundamental documents repeatedly. It helps ensure that shareholders and regulators are clear about the maximum amount of capital the company can raise through share issuance.

2. Subscribed Capital

Subscribed Capital refers to the portion of the authorised share capital that investors agree to take up or subscribe to when shares are issued. This represents the total value of shares that have been committed to by investors or shareholders but may not yet have been paid for in full.

For example, a company may offer 1 million shares of $10 each to the public as part of an initial public offering (IPO). If investors subscribe to 800,000 of these shares, the subscribed capital is $8 million.

Subscribed capital is important because it reflects the demand for the company’s shares. The value of the subscribed capital will be less than or equal to the authorised share capital. However, it is a dynamic figure and can change over time as new shares are issued or as investors buy and sell shares.

3. Issued Share Capital

Issued Share Capital refers to the portion of the authorised share capital that has actually been allotted or issued to shareholders. This represents the nominal value of the shares that the company has made available to the public or its private investors.

Issued share capital is a subset of the authorised share capital, and it is the actual capital raised by the company. The amount of issued capital may be less than or equal to the authorised share capital. Once shares are issued, they become part of the company’s issued capital.

For instance, if a company has an authorised share capital of $10 million and decides to issue only $5 million worth of shares initially, its issued capital is $5 million. This amount may increase in the future as the company issues additional shares.

Issued share capital is a key indicator of the company’s ability to raise funds from investors and is critical for determining the total ownership of the company. The number of shares issued determines the level of control and voting power that shareholders have.

4. Called-Up Share Capital

Called-Up Share Capital refers to the portion of the issued share capital that shareholders are required to pay to the company. When a company issues shares, it often does not demand immediate payment in full. Instead, the company may issue partly paid shares or allow shareholders to pay for the shares in installments.

When a company "calls" on its shareholders to pay for their shares, this amount becomes part of the called-up capital. The call-up is the amount that shareholders are legally required to pay to the company when asked to do so, typically in one or more installments.

For example, if a company issues 1,000 shares with a nominal value of $10 each but calls for only $6 per share initially, the called-up share capital would be $6,000 (1,000 shares * $6). If the company later calls for the remaining $4 per share, the total called-up capital would increase to $10,000.

The concept of called-up capital allows companies to raise funds gradually, without requiring full payment upfront. It also provides flexibility in managing the company's liquidity needs.

5. Paid-Up Share Capital

Paid-Up Share Capital is the actual amount of money that shareholders have paid to the company on the called-up share capital. It represents the portion of the called-up capital that has been fully paid by the shareholders.

Paid-up capital is an important figure because it reflects the actual amount of funds the company has received from shareholders in exchange for its shares. It is the amount that the company can use for its operations, investments, or any other business purposes.

For example, if a company has issued 1,000 shares with a nominal value of $10 each and shareholders have paid $6 per share initially, the paid-up capital will be $6,000. If the shareholders subsequently pay the remaining $4 per share, the paid-up capital will increase to $10,000.

In cases where shareholders have not yet paid the full called-up amount, the outstanding balance is referred to as call in arrears. This represents the portion of capital that has been called upon by the company but remains unpaid.

The paid-up capital is essential for a company's balance sheet and is often a measure of the financial strength and stability of the company. Higher paid-up capital typically indicates a company has more funds at its disposal to conduct business.

6. Unpaid Share Capital (Call in Arrears)

Unpaid Share Capital refers to the portion of called-up capital that has not yet been paid by shareholders. This amount is sometimes referred to as "call in arrears."

When shares are issued with a commitment for future payment (such as partly paid shares), the shareholders are expected to pay the outstanding amount when called upon. If shareholders fail to pay these calls, the unpaid capital accumulates, and the company may have to take legal steps to recover the unpaid amount.

Unpaid share capital represents an amount owed to the company and is typically shown as a liability until paid. While the company has the right to call for this unpaid capital, it is not a part of the paid-up capital until the shareholder fulfills their obligation.

Conclusion

Share capital is a fundamental aspect of a company’s financial structure, determining how much money a company can raise through the issuance of shares and how this capital is distributed among its shareholders. The various types of share capital—authorised share capital, subscribed capital, issued share capital, called-up share capital, paid-up share capital, and unpaid share capital—all serve different roles in a company’s funding and ownership framework.

Understanding these different types of share capital is crucial for investors, regulators, and company managers. They help define the ownership structure, control, and financial stability of the company. Additionally, these categories ensure that the company complies with legal requirements and manages its capital in a way that supports its growth and operations.