IGCSE Accounting 0452 - 5.3 Limited Companies: Share Capital

Objective

Understand and distinguish between issued, called-up, and paid-up share capital.

Share Capital Basics

Share capital represents the money raised by a limited company by selling shares to investors. It's a key component of a company's equity.

Shares are units of ownership in a company. When a company issues shares, it receives capital in return.

Key Terms

• Issued Capital: The total number of shares a company has offered to the public for sale. This is the total amount of shares that have been issued, regardless of whether they have been bought by investors or not.
• Called-up Capital: The portion of the issued shares that the company has requested investors to pay for. Not all issued shares need to be fully paid.
• Paid-up Capital: The total amount of money actually received from investors for the called-up shares. This is the amount of capital the company has actually received.

Distinguishing Between the Terms

Here's a table to illustrate the differences:

Term	Definition	Example
Issued Capital	Total number of shares offered to the public.	A company issues 100,000 shares.
Called-up Capital	The amount the company has asked shareholders to pay for their shares.	The company calls up 50% of the issued shares.
Paid-up Capital	The total amount of money actually paid by shareholders for the called-up shares.	Shareholders pay £1 per share. The paid-up capital is £50,000 (100,000 shares x £0.50).

Relationship Between the Terms

The relationship between these terms is as follows:

Issued Capital > Called-up Capital > Paid-up Capital

The paid-up capital is always less than or equal to the called-up capital, which is in turn less than or equal to the issued capital.

Example Calculation

Consider a company with the following information:

• Number of shares issued: 20,000
• Amount called up per share: £2
• Number of shares called up: 15,000

Calculate the paid-up capital:

1. Total amount of capital called up = Number of shares called up x Amount called up per share = 15,000 x £2 = £30,000
2. Paid-up capital = Total amount of capital called up = £30,000

Importance of Share Capital

Share capital is important for a limited company as it provides a source of funding for the company's operations and growth. It also reflects the company's financial strength and solvency.