Get an overview of issued share capital and its importance in finance. Learn its definition, the difference from authorised capital, presentation and its impact on a company.
What is Issued Share Capital?
The total amount of shares that a firm has issued, in circulation, tradeable, and are held by shareholders is referred to as the issued share capital. This represents the amount of capital that has been raised by the company through the sale of its shares to investors and is a key component of a company’s balance sheet. The issued share capital represents the total ownership structure of the company and determines the voting rights and dividend entitlement of shareholders.
The monetary value of the shares of stock that a company actually offers for sale to investors is known as issued share capital. The number of shares issued is typically equivalent to the subscribed share capital, but cannot exceed the authorized amount of shares.
For instance take XYZ Limited, a publicly traded company. Let’s say XYZ Limited issued 1 million shares of common stock at a price of ₹10 per share, raising ₹10 million in capital. The issued share capital of XYZ limited would be 1 million shares x ₹10 per share = ₹10 million.
This means that the company has 1 million shares outstanding and available for trading, and the shareholders of XYZ Limited own a proportional amount of the company’s assets and profits based on the number of shares they own. For example, if an individual owns 100 shares of XYZ Limited, they own 100/₹1 million = 0.01% of the company.
Difference Between Authorised Share Capital and Issued Share Capital
| Authorised Share Capital | Issued Share Capital | |
| Definition | Maximum amount of shares that a company is legally authorised to issue | Number of shares actually issued to the shareholders |
| Purpose | Establishes a limit for the company to issue shares in future | Represents the actual amount of ownership the shareholders have in the company |
| Determination | Determined by the company’s Articles of Association (AOA) or Memorandum of Association (MOA) | Determined by the board of directors based on the authorised share capital |
| Limitation | Cannot be changed without the approval of the shareholders and the regulatory authorities | Cannot be more than the authorised share capital |
The authorized share capital is a theoretical limit and does not necessarily reflect the company’s financial status or future plans for issuing shares. Here’s a table summarising the fees for increasing the authorised capital in India:
| Filing fee | Paid to the Registrar of Companies (ROC) |
| Stamp duty | Paid to the state government based on the amount of authorised capital increase |
| Legal fee | Paid to a professional for preparing and filing the necessary documents |
The fees mentioned above may vary depending on the magnitude of the increase in authorised capital and the specific jurisdiction within India. It’s advisable to consult our legal or financial professional to determine the exact fees and requirements for increasing the authorised capital in India.
Presenting Share Capital on Financial Statements
Share capital is typically presented on a company’s balance sheet as part of its equity section. The balance sheet shows the total amount of capital that the company has raised through the sale of its shares, as well as the breakdown of different types of shares that have been issued.
The information typically included in a company’s balance sheet related to share capital includes:
- Authorized Capital: Total shares that the company is allowed to issue
- Issued Capital: The portion of authorised capital that has actually been issued and is outstanding, available for trading, and held by shareholders
- Paid-Up Capital: The amount of issued capital for which the corporation has received full payment
- Treasury Shares: The quantity of issued shares that are held by the firm rather than by shareholders.
It’s also common for companies to provide additional information in the notes to their financial statements, including details on the different types of shares that have been issued, any restrictions on the shares, and any recent changes to the share capital. This information is important for investors, as it provides insight into the company’s ownership structure, its ability to raise additional capital, and its potential for growth.
Impact of the Issued Share Capital in the Company
- Ownership Structure: The issued share capital determines the distribution of ownership among shareholders, which can influence the control and decision-making power within the company
- Capitalisation: The issued share capital represents the actual amount of equity capital in the company, which affects its financial position and creditworthiness
- Dilution of Ownership: Issuing additional shares can dilute the ownership and control of existing shareholders
- Fundraising: The company can raise capital by issuing new shares, which can be used to fund growth, expansion, or other business initiatives
- Valuation: The number and pricing of shares can affect the valuation of the company, which can impact its ability to raise capital and attract investors
- Liquidity: The more shares that are issued, the greater the liquidity of the stock, making it easier for shareholders to buy and sell shares.
In summary, the issued share capital determines the actual ownership structure, capitalization, and liquidity of a company, and can have a significant impact on its financial position, valuation, and ability to raise capital.
Frequently Asked Questions For Issued Share Capital
What is paid-up capital?
Paid-up capital refers to the portion of issued capital for which full payment has been received by the company.
How is share capital presented on a company's financial statements?
Share capital is typically presented on a company's balance sheet as part of its equity section. The balance sheet shows the total amount of capital that the company has raised through the sale of its shares, as well as the breakdown of different types of shares that have been issued.
How does share capital affect a company's valuation?
The amount of share capital a company has issued can affect its valuation, as it represents a claim on the company's assets and earnings. A higher amount of issued capital can dilute the value of existing shares, while a lower amount may indicate a more tightly held ownership structure.
Why is share capital important?
Share capital is important because it represents the capital that a company has raised through the sale of its shares and determines the ownership structure of the company, including the voting rights and dividend entitlements of shareholders.
Can a company issue more shares than its authorised capital?
No, a company cannot issue more shares than its authorised capital. If a company wishes to issue additional shares, it must first amend its articles of incorporation to increase its authorised capital.
What is the difference between authorised capital and issued capital?
While issued capital refers to the percentage of authorised capital that has actually been issued and is now outstanding, available for trading, and held by shareholders, authorised capital refers to the maximum number of shares that a corporation is legally permitted to issue.
Conclusion
Issued share capital is a crucial aspect of a company’s financial structure and ownership. It represents the portion of a company’s authorised capital that has been issued and sold to shareholders and provides crucial information about a company’s ability to raise capital and its potential for growth. By understanding the difference between authorised capital and issued capital, and the importance of presenting share capital on financial statements, investors and stakeholders can gain valuable insight into a company’s operations and future prospects. Whether you are an experienced investor or just starting to learn about finance, it is important to stay informed about the basics of issued share capital. You can get in touch with our experts to get clear insights on issued share capital and its other aspects.
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