For any budding entrepreneur or business owner, raising capital is perhaps one of the biggest hurdles on the road to success. But what happens once you’ve managed to secure investors? This is where issued and called up share capital comes in. Essentially, it refers to the amount of capital that has been raised through the issue of shares, and that has actually been paid for by shareholders.
So, why is this important? Well, for one thing, it’s a way to measure the financial health and stability of a company. It gives an indication of the level of interest in a particular business, and can also be used to calculate the return on investment for shareholders. In addition, it’s a key factor in determining the voting rights that shareholders have within the company.
Of course, as with many financial terms, issued and called up share capital can be confusing at first. However, with a little bit of research, it’s something that any business owner or investor should be able to understand. So, if you’re looking to start a business or invest in a company, it’s definitely worth taking the time to get to grips with this key financial concept.
Understanding Share Capital
Share capital refers to the amount of money that a company receives from its shareholders for issuing shares. This money is invested in the company for further business expansion and operations. A company’s share capital can be divided into two categories: issued share capital and called-up share capital.
- Issued Share Capital: The issued share capital refers to the portion of share capital that has been allotted and issued to the shareholders. In simpler terms, issued share capital represents the shares that are currently held by the company’s shareholders.
- Called-up Share Capital: The called-up share capital refers to the amount that the company has “called up” from its shareholders. It represents the total amount of funds that the company has demanded from its shareholders for the purpose of shareholding.
The main difference between issued and called-up share capital is that while issued share capital represents the shares owned by shareholders, called-up share capital is the amount that the shareholders owe to the company. The company can “call up” this share capital at any time, as per its requirements.
It is important to note that companies are legally required to maintain a minimum amount of share capital at all times. This is known as the authorized share capital, which specifies the maximum amount of share capital a company can issue. The company can only issue shares up to this limit.
Understanding share capital is crucial for both the company and its shareholders as it affects the overall value and valuation of the company.
Types of Share Capital
Share capital refers to the ownership interest of shareholders in a company represented through the issuance of shares. Issued and Called Up share capital is the total number of shares of a company that have been issued to shareholders by the company and on which they are required to pay full value. There are different types of share capital, which are:
- Ordinary shares: These are the most common type of shares that are issued by companies. They give the holder the right to vote at the annual general meeting, the right to receive dividends, and the right to receive a share of the company’s assets when it is wound up.
- Preference shares: These are shares that carry preferential rights over ordinary shares. The holders of these shares are entitled to a fixed rate of dividends before the dividends are paid to ordinary shareholders. In case of winding up, the preference shareholders have a higher claim on the company’s assets than the ordinary shareholders.
- Cumulative preference shares: These shares carry the right to accumulate dividends in case the company is unable to pay them due to insufficient profits. If the company makes a profit in the future, the accumulated dividends are paid out to the shareholders before dividends are paid to ordinary shareholders.
In addition to the above types of share capital, there are also different classes of shares that companies may issue, each with its own set of rights and restrictions attached to it. The table below summarizes the main differences between the different classes of shares:
| Class of shares | Features |
|---|---|
| Class A shares | Carry greater voting rights than other classes of shares |
| Class B shares | Have lower voting rights than Class A shares |
| Redeemable shares | Can be bought back by the company at a fixed price after a certain period of time |
| Non-voting shares | Do not carry voting rights, but have the same rights to receive dividends and assets as other shares |
Understanding the different types and classes of share capital is important for investors as it helps them make informed decisions when investing in a company. Companies also need to carefully consider the types of shares they issue as it can affect their ability to raise capital and their relationships with shareholders.
Difference Between Issued and Called Up Share Capital
Share capital represents the amount of money that a company has raised by issuing shares to shareholders. The share capital is divided into two categories which are the issued share capital and called up share capital. Knowing the difference between the two is important for shareholders to understand their rights and obligations.
Issued Share Capital
- Issued share capital is the total value of the shares a company has issued to its shareholders.
- Once a company has issued shares, the shareholders own a percentage of the company that is equivalent to the number of shares they hold.
- The issued share capital can be increased if the company decides to issue more shares.
Called Up Share Capital
Called up share capital is the amount of money that shareholders are required to pay for their shares, as specified in the company’s Articles of Association. The directors of the company can decide when and how much the shareholders need to pay.
- The called up share capital is usually less than the issued share capital, as the shareholders may only have paid a portion of the total amount owing.
- If the company needs to raise more capital, it may call up more funds from shareholders by issuing a call for payment.
- If a shareholder fails to pay the called up share capital, the company can take legal action to recover the amount owed.
Issued vs. Called Up Share Capital
The main difference between issued and called up share capital is that the issued share capital is the total amount of shares that have been issued by the company, while the called up share capital is the amount of money that shareholders are required to pay for their shares.
| Issued Share Capital | Called Up Share Capital | |
|---|---|---|
| Definition | The total value of shares issued by the company. | The amount of money that shareholders are required to pay for their shares. |
| Purpose | To determine the ownership percentage of shareholders. | To raise capital for the company. |
| Increasable | Yes. The company can issue more shares to increase the issued share capital. | Yes. The company can call up more funds from shareholders to increase the called up share capital. |
| Payment | Not applicable. Shareholders have already paid for their shares. | Required. Shareholders are obligated to pay the called up share capital when directed by the company. |
Understanding the difference between issued share capital and called up share capital is important for shareholders as it affects their ownership and financial obligations in the company.
Calculation of Issued and Called Up Share Capital
One important aspect of company finance is the calculation of issued and called up share capital. Essentially, issued share capital is the total value of shares that a company has sold to shareholders, while called up share capital refers to the amount of capital that those shareholders are required to pay for their shares.
There are a few key steps involved in calculating these figures, as outlined below:
- Determine the nominal value: The nominal value of a share is the minimum amount that a shareholder is required to pay for each share. This value is determined when the company is incorporated and is usually set at a low figure, such as 1p or 10p per share.
- Calculate the issued share capital: To determine the total value of shares that a company has issued, multiply the number of shares by the nominal value per share. For example, if a company has issued 10,000 shares with a nominal value of 10p per share, its issued share capital would be £1,000.
- Calculate the called up share capital: While a company may have issued shares to shareholders, it does not necessarily mean that those shareholders have paid the full nominal value for their shares. The amount that shareholders are required to pay for their shares is known as called up share capital. To calculate this figure, multiply the number of shares by the amount that shareholders are required to pay for each share.
For example, if a company has called up share capital of £800 and has issued 10,000 shares with a nominal value of 10p per share, this would mean that shareholders have paid 8p per share for their shares.
It’s important for companies to maintain accurate records of their issued and called up share capital, as this information is used in a number of financial calculations, such as earnings per share and return on capital employed.
| Term | Definition |
|---|---|
| Issued share capital | The total value of shares that a company has sold to shareholders. |
| Called up share capital | The amount of capital that shareholders are required to pay for their shares. |
| Nominal value | The minimum amount that a shareholder is required to pay for each share. |
Overall, understanding the calculation of issued and called up share capital is essential for any company looking to manage its finances effectively and accurately.
Importance of Issued and Called Up Share Capital
Issued and called up share capital refers to the total amount of shares that a company has offered to shareholders for purchase. This capital is important for a number of reasons.
- Raising Funds: The primary reason for issuing and calling up share capital is to raise funds. By selling shares of their company, businesses are able to generate capital to invest in growth, technology, and other important initiatives.
- Limiting Liability: Shareholders are only liable for the value of the shares they have purchased. This means that they are not responsible for any debts or obligations that the company may incur beyond their investment. Issuing and calling up share capital therefore limits the risks that investors are exposed to.
- Attracting Investors: The amount of issued and called up share capital can be a factor in attracting investors. Companies with larger amounts of share capital may be perceived as being more stable and therefore more attractive to investors.
But just how much share capital should be issued and called up? This is an important consideration that depends on a number of factors such as the size, industry, and growth potential of the company. In addition, the amount of share capital that a company has already issued and called up can impact their ability to raise additional funds in the future.
For example, if a company has already issued and called up a significant amount of their share capital, potential investors may question whether or not the company’s growth potential has been fully realized. On the other hand, if a company has little share capital issued and called up, it may be perceived as being too risky or unstable.
| Company A | Company B | Company C | |
|---|---|---|---|
| Issued and Called Up Share Capital | $5 million | $10 million | $25 million |
| Industry | Technology | Healthcare | Real Estate |
| Growth Potential | High | Medium | Low |
As shown in the table, a company’s issued and called up share capital should be evaluated in context with other factors such as industry and growth potential. This will help potential investors to make informed decisions about a company’s potential for future success.
Legal Requirements for Issued and Called Up Share Capital
Issued share capital represents the total number of shares that a company has made available for purchase by investors. Called up share capital, on the other hand, refers to the amount of money that shareholders are required to pay for their shares. In this section, we will discuss the legal requirements for issued and called up share capital.
- Minimum Share Capital: Every company must have a minimum share capital, which varies depending on the type and location of the company. In the UK, for example, a private limited company must have at least £1 of issued share capital.
- Authorized Share Capital: Authorized share capital is the maximum amount of share capital that a company is authorized to issue. It is stated in the company’s articles of association and can be increased or decreased by a special resolution.
- Disclosure Requirements: Companies are required to disclose their issued and called up share capital in their annual financial statements. This helps investors and other stakeholders to understand the ownership structure of the company.
It is important to note that companies must comply with these legal requirements for their issued and called up share capital. Failure to do so can result in fines, legal penalties, and damage to the company’s reputation.
Below is a table that provides an example of how issued and called up share capital can be calculated:
| Type of Share | Number of Shares | Face Value | Called Up Share Capital |
|---|---|---|---|
| Ordinary Shares | 10,000 | £1 | £10,000 |
| Preference Shares | 5,000 | £2 | £10,000 |
| Total | 15,000 | £20,000 |
In this example, a company has issued 10,000 ordinary shares with a face value of £1 each, and 5,000 preference shares with a face value of £2 each. The called up share capital is £20,000, which represents the total amount of money that shareholders are required to pay for their shares.
Issued and called up share capital are important measures of a company’s financial health and resilience. By understanding the legal requirements for these measures, companies can ensure compliance with the law and provide transparency to their investors and other stakeholders.
Changes in Issued and Called Up Share Capital Over Time
Share capital is an important term for businesses, describing the total amount of funds raised by issuing shares to shareholders or investors. The two key terms to know when discussing share capital are “issued share capital” and “called-up share capital.” Issued share capital refers to the total number of shares the company has actually issued to shareholders, while called-up share capital refers to the amount that shareholders are required to pay for those shares.
Over time, a company’s issued and called-up share capital may change for a variety of reasons, including:
- New share issues: A company may choose to issue new shares to raise additional funds for expansion, debt repayment, or other purposes. This will increase the company’s issued share capital.
- Share buybacks: On the other hand, a company may choose to buy back its own shares to reduce the number of outstanding shares. This can be viewed positively by investors, as it signals that the company believes its shares are undervalued. However, this will decrease the company’s issued share capital.
- Share splits: A company may choose to split its shares to decrease the price per share and make them more affordable for individual investors. This will increase the number of issued shares, but not the total value of the share capital.
Tracking changes in a company’s share capital over time is important for investors, as it can provide insights into the company’s financial health and growth potential. But even if you’re not investing in a company, understanding share capital and how it changes over time can help you understand the broader economic landscape and how businesses raise capital.
Example: Changes in Google’s Share Capital
As an example, let’s take a look at the changes in Google’s issued and called-up share capital over time.
| Year | Issued Share Capital | Called-Up Share Capital |
|---|---|---|
| 2004 | 172 million | $1.2 billion |
| 2008 | 315 million | $2.2 billion |
| 2012 | 322 million | $2.8 billion |
| 2016 | 680 million | $5.8 billion |
As we can see from this table, Google’s issued share capital has significantly increased over time, from 172 million in 2004 to 680 million in 2016. This is largely due to the company’s decision to issue more shares to raise additional capital. At the same time, however, Google’s called-up share capital has also increased, indicating that shareholders are paying more for each share they own.
Overall, understanding changes in a company’s share capital over time can provide valuable insights for both investors and anyone interested in the economy at large.
FAQs about Issued and Called Up Share Capital
Q: What is issued share capital?
A: Issued share capital is the total number of shares that a company has physically issued to its shareholders.
Q: What is called up share capital?
A: Called up share capital is the portion of issued share capital that the company has requested payment for from its shareholders.
Q: Can issued share capital be greater than called up share capital?
A: Yes, a company may issue more shares than it has received payment for, resulting in a difference between issued share capital and called up share capital.
Q: What happens if a shareholder fails to pay for the called up share capital?
A: The company may take legal action against the shareholder to recover the payment, and may also forfeit the shares.
Q: Can a company increase its called up share capital?
A: Yes, a company may increase its called up share capital by issuing new shares or by increasing the amount requested from existing shareholders.
Q: How is called up share capital different from authorized share capital?
A: Authorized share capital is the maximum number of shares that a company is allowed to issue, while called up share capital is only the portion of issued share capital that the company has requested payment for.
Q: Why is issued and called up share capital important?
A: Issued and called up share capital are important indicators of a company’s financial health, as they provide insight into the amount of capital raised and the amount of funds the company has received from its shareholders.
Closing Thoughts
Thanks for taking the time to learn about what issued and called up share capital are. It may seem like a complicated concept, but understanding the basics can help you make more informed investment decisions. Consider visiting our site later for more financial knowledge.