Paid-Up Share Capital Meaning, Formula, and Elements

Paid-up share capital is the actual money a company receives from shareholders in exchange for shares. It forms the financial base for operations, growth, and legal compliance. Understanding it helps assess a company’s stability and long-term potential, whether it’s a private firm or a public enterprise. In this article, you will learn about paid-up capital in detail.

What Is Paid-Up Capital?

Paid-up capital is the actual money a company receives from shareholders when it issues shares. It is a portion of the authorised capital and represents the funds that have already been paid to the company in exchange for ownership. Once received, this amount becomes part of the company’s permanent capital and is used to support its business operations, growth, or expansion.

This capital is raised when the company sells its shares in the primary market, often during an Initial Public Offering (IPO). Investors who buy these shares become shareholders of the company. After the initial sale, if the shares are traded in the secondary market—such as on a stock exchange—the money goes to the selling shareholder, not to the company. Therefore, the company gains paid-up capital only from the first issue, not from later trades between investors.

Here’s a simple formula used to calculate paid-up capital:

Paid-up Capital = Par Value of Shares + Additional Paid-in Capital

Understanding this concept helps investors assess a company’s financial strength and its capacity to raise funds directly from the market.

Significance of Paid-Up Capital

Paid-up capital reflects the actual funds a company receives from shareholders, not borrowed money. A fully paid-up company has sold all its authorised shares and cannot raise more equity capital unless it increases its authorised limit. This capital shows how much a company relies on equity financing over debt financing. A higher paid-up capital often signals financial stability and lower dependence on loans, helping investors assess long-term strength and risk exposure.

Paid-Up Capital Example

Suppose a company issues 500 shares with a face value of ?20 each. Investors buy these at ?30 per share.

• Total amount raised = 500 × ?30 = ?15,000
• Par value (face value) = 500 × ?20 = ?10,000
• Additional paid-in capital = ?10 × 500 = ?5,000

So, the company’s paid-up capital becomes ?15,000, which includes both the face value and the premium paid by investors.

Main Elements of Paid-Up Capital

The main elements of paid-up capital are listed below:

• Issued Share Capital

Issued share capital is the part of authorised capital that a company allots to investors. It includes only those shares that the company officially offers to raise funds. The company cannot issue shares beyond its authorised limit without approval from the Registrar of Companies.

• Subscribed Share Capital

Subscribed share capital refers to the portion of issued shares that investors agree to buy. This shows the level of public or private interest in the company’s share offering. Subscribed capital may be less than issued capital if not all offered shares receive a response.

• Paid-Up Share Capital

Paid-up share capital is the actual amount the company receives from shareholders for the shares they hold. It represents real money collected. Paid-up capital can be equal to or less than subscribed capital if shareholders have not paid in full.

• Partly Paid-Up Capital (if applicable)

Partly paid-up capital arises when the company allows shareholders to pay for shares in parts. The portion paid counts as paid-up capital. The unpaid balance remains outstanding and does not add to the company’s usable funds.

• Share Premium (if applicable)

Share premium refers to the extra amount investors pay when shares are issued at a price above face value. This excess amount does not form part of the paid-up capital but goes into a separate account called the Securities Premium Account. It strengthens the company’s reserves.

• Bonus Shares (if applicable)

Bonus shares are issued to existing shareholders without taking new money. The company uses its accumulated profits or reserves to convert them into share capital. This increases the paid-up capital without bringing in additional funds.

• Calls-in-Arrears (if applicable)

Calls-in-arrears refer to the unpaid amount on shares that shareholders fail to pay when due. The company deducts this unpaid amount from the total expected payment. As a result, the actual paid-up capital reduces.

Conclusion

To sum up, paid-up share capital shows the actual funds a company holds from shareholders in return for shares. It reflects equity strength, supports financial independence, and builds investor confidence. It also plays a crucial role in defining how a company meets its funding needs without debt exposure.

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