What is the difference between Authorised capital, Issued capital, Subscribed capital, Called-up capital and Paid-up capital?

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Authorized capital: The amount of capital with which a company is registered with the registrar of companies (body responsible for registration of companies). It is the maximum amount of capital which a company can raise through shares i.e. shared capital can be maximum up to the authorized capital and not beyond. Due to this reason companies are registered with such authorized capital which is well above their current needs of financing so that if more is needed in future then it is easily possible. Authorized capital is also called Registered capital or Nominal capital.

Subscribed capital: The amount of capital (out of authorized capital) for which company has received applications from the general public who are interested in buying shares. If this term is too technical to be understood then subscription is simply an application in which investors expresses his interest to buy shares in the company. Usually only that much shares are subscribed which company intends to issue later. But sometimes, if company is in good shape then more and more people will be interested in buying shares and in this case over-subscription will be the result. But if company’s financial position is not sound or due to other factors it may be possible that subscriptions are received for lesser then intended shares in which case there will be under-subscription.

Issued capital: The amount of capital (out of subscribed capital) which has been issued by the company to the subscribers and thus are now shareholders.

Called-up capital: In some jurisdictions, company is permitted to ask for only part of the total issued capital i.e. company will require shareholders to pay only part of the amount of the shares they hold and not to pay fully. The partial amount (out of issued capital) so asked by the company from the shareholders out of the total value of shares is called-up capital.

Paid-up capital: The amount of capital (out of called-up capital) against which the company has received the payments from the shareholders so far.

Example:

ABC Ltd was registered with registrar with a registered capital of Rs. 20,000,000 where each share is of Rs. 10.

In response to the advertisements made by the company to buy shares in the company applications have been received for 1,000,000 shares but company actually issued 700,000 shares where company has called for Rs. 8 per share.

All the calls have been met in full except three shareholders who still owe for their 6000 shares in total.

Solution:

Authorized capital = Rs. 20,000,000

Subscribed capital = 1,000,000 x Rs. 10 = Rs. 10,000,000

Issued capital = 700,000 x Rs.10 = Rs. 7,000,000

Called-up capital = 700,000 x Rs. 8 = Rs. 5,600,000

Paid-up capital = 5,600,000 – (6000 x Rs. 8 ) = Rs. 5,552,000

Important
All of these types are basically types of share capital so, they are usually stated as following also:

  • authorised share capital
  • subscribed share capital
  • issued share capital
  • called-up share capital
  • paid-up share capital

28 COMMENTS

  1. From where that money come which is needed in day
    to day overheads of company.
    How many types of shareholders??
    Some participates in before incorporating and some by purchasing shares?

    • Interesting question. Entities raising funds via share issue at the start of the business or later do have their own money as well. At they start they do have enough cash invested by the ones who started the business and later they usually arrange day to day expenses from operational income of business or taking short term loans.

      Lets take an example from our daily lives. A school going boy usually do have enough money to afford a movie ticket or a toy to buy from pocket money, but to go on a solo trip or buy a new cell phone needs help of parents.

      Similarly, entities do have funds to start up their business, but to get it to the point where they want it to be so that it can achieve its objectives require more funds. Such funds are arranged by issuing shares or debentures.

      Broadly there are two types of share holders ordinary and preference share holders.

      Yes the ones that came with the idea of business usually have majority of shareholding of business and to raise funds they can issue shares to public.

  2. Hi Sir, i have some questions and would be really helpful if you can answer:
    1st – if the company had to pay Rs 20,000,000 as authorized capital (which means they actually paid this amount) then why didn’t they directly invest or kept it in bank to invest when required?
    2nd – Why would a company reduce per share price for 1,000,000 share from Rs 10 to 8 since it will generate less cash for them?

    • Hi there,
      Welcome to PakAccountants.com and I am glad to have your questions.

      1. Authorized capital is only a number for registration purposes. As the name suggest it is the maximum capital entity is authorized to raise. By getting entity registered with, for example, 20 million authorized capital, it does not mean that entity has issued 20 million worth of shares. What it means is that entity is given permission by regulatory authorities to raise shared capital up to this limit. Usually the actual share capital is significantly lower in number. For instance a company may have authorized capital to be 100 million but so far issued just 30 million worth shares. Entity receives money against “shared” capital NOT “authorized” capital.

      2. There can be several reasons for reducing par value of shares. One of the foremost reason is to make shares more competitive in the market. And probably by reducing per share price, entity may sell more number of shares as its more affordable now.

      Hope this answer the questions.
      – Hasaan

  3. Thank you sir for clearing my doubts..plz publish more finance concepts on this website… Respect from Indian occupied Kashmir….

  4. Thank you very much, the example given by you has played very much important role in this. so as soon as possible please more example on this topic. it will be very much helpful to us.

  5. Issued capital is that part of the authorized capital which is offered by the company for being subscribed by members of the public or anybody.

    Subscribed capital is that part of the issued capital which is subscribed (accepted) by the public.

  6. Upon formation of company directors agree to take 1000 shares as mentioned in memorandum. The company incorporated and now the directors have paid only 400 shares and the payment against 600 shares will be made subsequently.
    Please guide that is it according to companies ordinance

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