Share capital in company's balance sheet

Authorized capital is the maximum amount of capital which a company is allowed to raise through its shares from the stock market

When you look at financial statements of a company, various types of capital are mentioned. Understanding these terms are important for us. A company's financial statement mentions its authorized capital, issued capital, subscribed capital, called up capital and paid up capital. Let's try to understand what these terms mean.

Nominal or authorized capital:

Authorized capital is the maximum amount of capital which a company is allowed to raise through its shares from the stock market. The company is registered with this amount. Authorized capital is the sum mentioned in the capital clause of Memorandum of Association of a company (for example: Rs. 1 crore). It is the maximum amount, which the company raises by issuing the shares. This limit cannot be exceeded unless the Memorandum of Association is changed.

Issued capital:

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. It is the amount of capital (out of the authorized capital) which has been issued by the company to the subscribers.

Subscribed capital:

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

Called-up capital:

Called up capital is a part of subscribed capital which has been called up by the company for payment. For example, if 1,000 shares of Rs. 10 each have been subscribed by the public and of which Rs. 5 per share has been called up. Then the subscribed capital of the Company works out to Rs. 10,000 of which the called up capital of the Company is Rs. 5,000.

Paid-up capital

Paid-up capital refers to that part of the called up capital which has been actually paid by the shareholders. Some of the shareholders might have defaulted in paying the called up money. Such defaulted amount is called arrears. From the called up capital, calls-in-arrears is deducted to obtain the paid-up capital.

For instance:

Authorised capital of ABC Ltd is 1,000 shares of Rs. 10 each.

Company issues 300 shares to people.

People actually pay for only 200 shares (100 being outstanding receivable from people)

Then paid up capital is 200 shares * 10 rupees = Rs. 2,000.

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