When we attempt to classify share capital, we might get confuse with the various terms used.
Append below a table to differentiate the various terms used in the classification of capital: authorized or nominal capital, issued capital, subscribed, called-up and uncalled-up capital and finally the paid-up capital:
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WHAT IS AUTHORISED SHARE CAPITAL? |
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Authorised share capital is also called Nominal share capital |
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This the total amount of share capital stated in the Memorandum of Association of a limited company. It also states how the share capital is divided into individual shares of a set amount, such as $1 a share. |
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The authorized share capital represents the maximum amount of capital the company is allowed to raise from the public, through the issue of shares. |
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There are no upper or lower limits on authorised share capital for private limited companies, but a public limited company must have a certain minimum authorised share capital. ( varies in different countries ) |
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A company can increase its authorised share capital by passing an ordinary resolution at a general meeting. Equally, a company can decrease its authorised share capital by passing an ordinary resolution to cancel some shares – this is called diminution of capital or share capital reduction.
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WHAT IS ISSUED CAPITAL, SUBSCRIBED, CALLED-UP,UNCALLED-UP & PAID-UP CAPITAL? |
| Issued capital comprises that part of the authorised share capital that has actually been offered to the public for subscription and has been actually allotted the subscribers. It can be issued other than for cash and those issued for cash.
Subscribed capital comprises the amount of issued shares subscribed by the public. If the shares issued have been fully subscribed, then subscribed capital is equal to issued capital Called-up capital comprises that part of issued capital where the company has called up for the subscribers to pay up the money and Uncalled-up capital comprise that part of issued capital which has not yet been called up. Paid-up Capital is the amount of called-up capital that has been paid up by the shareholders. When a shareholder fails to pay the sum due when a call is made, the amount outstanding is called Calls in Arrear
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SO WHAT IS THE DIFFERENCE BETWEEN AUTHORISED AND ISSUED SHARE CAPITAL? |
| The main difference between the authorised and issued share capital represents the number and value of shares that the company can issue should it need to raise further capital.
The issued share capital cannot exceed the authorized or nominal share capital although companies can increase their authorized or nominal share capital if they need to. |
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ILLUSTRATION |
| XYZ Ltd has a nominal capital of 5,000,000 shares of $1 each. It issues 1,500,000 shares to the public, payable at 90 cents per share upon subscription. The shares are fully subscribed and the called-up shares are fully paid.
Question: Show the classification of XYZ Ltd’s share capital Authorised capital: $ 5,000,000 shares of $1 each 5,000,000 Issued capital and subscribed capital: 1,500,000 shares of $1 each 1,500,000 Called-up capital, fully paid: 1,500,000 shares at 90 cents per share 1,350,000 Uncalled-up capital: 1,500,000 shares at 10 cents per share 150,000 |