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Wednesday, February 17, 2010

The Capital of Limited Companies

The proprietors’ capital in a limited company consists of share capital. When a company is set up for the first time, it issues shares. These are paid for by investors, who then become shareholders of the company. Shares are denominated in units of 50 pence, 1$, 2$ or whatever seems appropriate. This “face value” of the shares is called their nominal value.

A distinction must be made between authorized, issued, called up and paid up share capital.

Authorized or nominal capital

Authorized or nominal capital is the maximum amount of share capital that a company is empowered to issue. The amount of authorized share capital varies from company to company, and can change by agreement.

Issued capital

Issued capital is the nominal amount of share capital that has been issued to shareholders. The amount of issued capital cannot exceed the amount of authorized capital. When share capital is issued, shares are allotted to shareholders. The term “allotted” share capital means the same thing as issued share capital.

Called-up capital

When shares are issued or allotted, a company does not always expect to be paid the full amount for the shares at once. It might instead call up only a part of the issue price, and wait until a later time before it calls up the remainder.

Paid-up capital

Like everyone else, investors are not always prompt or reliable payers. When capital is called up, some shareholders might delay their payment or even default on payment. Paid up capital is the amount of called up capital that has been paid.

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