Issued capital

3 key takeaways

• Issued capital is the portion of a company’s authorized capital that has been issued and sold to shareholders.
• It represents the actual funds raised by the company from shareholders, contributing to the company’s equity.
• Issued capital is critical for understanding a company’s capital structure and financial health.

What is issued capital?

Issued capital, also known as subscribed capital, is the portion of a company’s authorized capital that has been issued and allotted to shareholders. It represents the actual amount of capital that the company has received from shareholders in exchange for shares. Issued capital forms part of the company’s total equity and is recorded in the shareholders’ equity section of the balance sheet.

Components of issued capital

Authorized capital

• Definition: The maximum amount of share capital that a company is authorized to issue by its corporate charter.
• Importance: Sets the legal limit for the amount of capital the company can raise through the sale of shares.

Issued capital

• Definition: The portion of authorized capital that has been issued to shareholders.
• Components: Includes both fully paid and partly paid shares.

Paid-up capital

• Definition: The portion of issued capital for which shareholders have fully paid.
• Importance: Represents the actual funds received by the company from shareholders.

Example of issued capital

Suppose a company has an authorized capital of $1,000,000, divided into 1,000,000 shares with a par value of $1 each. If the company issues 500,000 shares to shareholders, the issued capital would be $500,000. If the shareholders have paid in full for these shares, the paid-up capital would also be $500,000.

Importance of issued capital

Capital structure

Issued capital is a key component of a company’s capital structure, representing the equity raised from shareholders. It provides insight into the company’s funding sources and financial stability.

Investor confidence

A higher issued capital can indicate strong investor confidence in the company, as it reflects the amount of capital that investors are willing to commit.

Legal compliance

Companies must comply with legal requirements regarding the issuance and reporting of capital. Issued capital helps ensure transparency and adherence to corporate governance standards.

How issued capital is recorded

Balance sheet

Issued capital is recorded in the shareholders’ equity section of the balance sheet. It is typically divided into:

• Share capital: The par value of the issued shares.
• Share premium: The amount received from shareholders over and above the par value of the shares (if any).

Example entry

For a company with 500,000 shares issued at a par value of $1 each and a share premium of $2 per share, the balance sheet entry would be:

• Share capital: $500,000 (500,000 shares x $1 par value)
• Share premium: $1,000,000 (500,000 shares x $2 premium)

Differences between issued capital, authorized capital, and paid-up capital

• Authorized capital: The maximum amount of capital a company is allowed to issue.
• Issued capital: The actual amount of capital that has been issued to shareholders.
• Paid-up capital: The portion of issued capital that shareholders have fully paid for.

Related topics

• Authorized capital: Understand the legal implications and significance of the maximum share capital a company can issue.
• Paid-up capital: Learn about the portion of issued capital that has been fully paid by shareholders and its impact on financial health.
• Shareholders’ equity: Explore the components of shareholders’ equity and its importance in a company’s financial statements.

Consider exploring these related topics to gain a deeper understanding of the various aspects of a company’s capital structure and how issued capital fits into the broader financial landscape.