Paid-up capital is the amount of money a company has received from shareholders in exchange for shares of stock. Paid-up capital is created when a company sells its shares on the primary market directly to investors, usually through an initial public offering (IPO). When shares are bought and sold among investors on the secondary market, no additional paid-up capital is created as proceeds in those transactions go to the selling shareholders, not the issuing company.
Key Takeaways
Paid-up capital is money that a company receives from selling stock directly to investors.
The primary market is the only place where paid-up capital is received, usually through an initial public offering.
Funding for paid-up capital is arrived at from two sources: the par value of stock and excess capital.
Paid-up capital is the amount paid by investors above the par value of a stock.
Equity financing is represented by paid-up capital.
Paid-up capital, also called paid-in capital or contributed capital, is arrived at from two funding sources: the par value of stock and excess capital. Each share of stock is issued with a base price called its par. Typically, this value is quite low, often less than $1. Any amount paid by investors that exceeds the par value is considered additional paid-in capital or paid-in capital in excess of par.
In the shareholders' equity section of the balance sheet, the par value of issued shares is listed as common stock or preferred stock. Share capital may appear as:
Paid-up capital to represent funds already received from investors
Paid-in capital to represent funds that satisfy the full purchase price of the shares
For example, if a company issues 100 shares of common stock with a par value of $1 and sells them for $50 each, the shareholders' equity of the balance sheet shows paid-up capital totaling $5,000, consisting of $100 of common stock and $4,900 of additional paid-up capital.
Paid-Up Capital vs. Authorized Capital
When a company wants to raise equity, it cannot simply sell off pieces of the company to the highest bidder. Businesses must request permission to issue public shares by filing an application with the agency responsible for the registration of companies in the country of incorporation. In the United States, companies wanting to "go public" must register with the Securities and Exchange Commission (SEC) before issuing an initial public offering (IPO).
The maximum amount of capital a company is given permission to raise via the sale of stock is called its authorized capital. Typically, the amount of authorized capital a company applies for is much higher than its current need. This is done so that the company can easily sell additional shares down the road if the need for further equity arises. Since paid-up capital is only generated by the sale of shares, the amount of paid-up capital can never exceed the authorized capital.
Importance of Paid-Up Capital
Paid-up capital represents money that is not borrowed. A company that is fully paid-up has sold all available shares and thus cannot increase its capital unless it borrows money by taking on debt. A company could, however, receive authorization to sell more shares.
A company's paid-up capital figure represents the extent to which it depends on equity financing to fund its operations. This figure can be compared with the company's level of debt to assess if it has a healthy balance of financing, given its operations, business model, and prevailing industry standards.
Paid-up capital represents money that is not borrowed. A company that is fully paid-up has sold all available shares and thus cannot increase its capital unless it borrows money by taking on debt. A company could, however, receive authorization to sell more shares.
Paid-up capital is the amount of money a company has been paid from shareholders in exchange for shares of its stock. Sometimes, a company may issue shares and not receive the full payment from the investor—usually large institutional investors. The value of these shares is called-up share capital.
Paid-up capital is the amount of money received by the company when it sells its shares to the shareholders and investors directly through the primary market. In other words, it is the money that the investors give to the company on buying a share in that company.
Paid-in capital is reported in the shareholders' equity section of the balance sheet. It is usually split into two different line items: common stock (par value) and additional paid-in capital. Paid-in capital can be a significant source of capital for new projects and can help offset business losses.
It serves as a measure of the financial strength of the company. A company's amount of paid-up capital can impact its ability to borrow money or attract new investors. Paid-up capital can be increased by issuing new shares or decreased through share buybacks.
Let's say a company issues 100 shares with a par value of ₹10 each.If the shares are sold for ₹15 each, then the paid up capital would be ₹1500. This means that investors paid ₹15 per share, which is ₹5 above the par value. Thus, it would consist of ₹100 in common stock and ₹1500 in excess.
Shareholders cannot withdraw their share or any amount from the paid up capital. The money belongs to the company and must be used solely for business purposes. This means that shareholders cannot treat the company's paid up capital as a personal bank account and use the funds for their needs.
Only paid-up capital is used to determine the company's net value. Rs 1 lakh for private limited companies and Rs 5 lakh for public limited companies (pre-2015 amendment). Must be less than or equal to the authorized capital. Companies cannot issue shares beyond this limit.
Issued share capital is the total amount of shares that have been given to shareholders.Paid-up share capital refers to the amount of issued share capital that has already been fully paid for.
Paid-in capital, or contributed capital, is the full amount of cash or other assets that shareholders have given a company in exchange for stock. Paid-in capital includes the par value of both common and preferred stock plus any amount paid in excess.
Answer and Explanation: It is true that the main source of paid-in capital is from issuing stock. The account Paid-In Capital is credited to reflect the difference between the amount the stock sold for and par value. This account is shown as one of the equity accounts used by a corporation.
Also known as paid-in capital or contributed capital, the term is used to describe the amount of money that the company has received from shareholders in exchange for stock. This revenue stream is created when a company sells its shares directly to investors on the primary market.
PUC is the precise amount a shareholder pays for his or her shares. Generally speaking, PUC can be returned to shareholders free of tax (including Part XIII withholding tax), whereas other distributions of capital are taxable as either a dividend or a taxable shareholder benefit.
Shareholders cannot withdraw their share or any amount from the paid up capital. The money belongs to the company and must be used solely for business purposes. This means that shareholders cannot treat the company's paid up capital as a personal bank account and use the funds for their needs.
Yes.The paid-up capital must be deposited in the company's corporate bank account and, therefore, made in cash. If the shares are issued for non-cash consideration (for example, in exchange for experience and services), the equivalent dollar value must be transferred to the company's bank account.
Authorised Capital is the maximum worth of shares a company can issue.Paid-up Capital is the actual worth of shares a company receives. The net worth of a company is not determined by its authorised capital. The paid up capital is the net worth of the company.
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