Issued Share Capital vs. Subscribed Share Capital: An Overview
Share capital refers to the amount of funding a company raises through the sale of stock to public investors. This means the company grants shareholders a small ownership stake in the company in exchange for monetary investment. Share capital constitutes the main source of equity financing and can be generated through the sale of common or preferred shares.
Common stock is what most people think of when they talk about the stock market. Common, or ordinary, shareholders have voting rights and participate in major company decisions. Although companies at times pay dividends on common shares, they are not required to pay them.
Key Takeaways
- Share capital is the total of all funds raised by a company through the sale of equity to investors.
- Issued share capital is the value of shares actually held by investors.
- Subscribed share capital is the value of shares investors have promised to buy when they are released.
- Subscribed shared capital is usually part of an IPO.
Preferred shares, also called preference shares, do not entail the same kinds of ownership rights as common shares. However, they generally include a guaranteed dividend each year that must be paid before any dividends can be distributed to common shareholders. In short, though preferred shareholders have fewer rights, they do have a higher claim on company assets.
Although share capital refers to a dollar amount, it is dictated by the number and selling price of a company's shares. For example, if a company issues 1,000 shares for $25 per share, it generates $25,000 in share capital.
Share capital is only generated by the initial sale of shares by the company to investors. If the investor goes on to trade those shares to a third party, any profit made on the sale does not contribute to the issuing company's share capital.
Issued Share Capital
Issued shares are the shares sold to and held by company investors. These investors can include large institutions or individual retail investors. Sometimes, large institutional purchases of shares may only be partially paid for and will be accounted as called-up share capital. The amount already received in payment is the paid-up share capital. When fully paid, the amount is recorded as paid-in share capital.
Issued share capital is simply the monetary value of the shares of stock a company actually offers for sale to investors. The number of issued shares generally corresponds to the amount of subscribed share capital, though neither amount can exceed the authorized amount.
When a company prepares to "go public" by issuing stock for the first time, investors can submit an application expressing their desire to participate.
Subscribed Share Capital
Subscribed shares are shares that investors have promised to buy. These shares are usually subscribed as part of an initial public offering (IPO).
Underwriters often promise to deliver a certain number of subscribed shares prior to the IPO. The subscribers are usually large institutional investors and banks. Subscribed share capital refers to the monetary value of all the shares for which investors have expressed an interest.
Special Considerations
Share capital can fall into one of several other categories, depending on where the company is in the equity-raising process. They include the following:
Authorized Share Capital
The maximum amount of share capital a company is allowed to raise is called its authorized capital. Though this does not limit the number of shares a company may issue, it does put a ceiling on the total amount of money that can be raised by the sale of those shares.
Called-Up vs. Paid-Up Share Capital
Depending on the business and applicable regulations, companies may issue stock to investors with the understanding the investors will pay at a later date. Any funds due for shares issued but not fully paid for are called-up share capital. Any funds remitted for shares are considered as paid-up capital.
Other types of capital, such as debt financing or mezzanine financing, are not considered share capital. Debt capital includes financing sources such as lines of credit, business loans, and credit card balances. While mezzanine financing, like share capital, is included under the equity section of the balance sheet, it is not considered share capital.
As an expert in finance and corporate structures, I have a robust understanding of various aspects of company funding and equity management. I've acquired this knowledge through years of academic study, practical application in financial roles, and continuous engagement with evolving industry trends and regulations.
Let's delve into the concepts addressed in the article "Issued Share Capital vs. Subscribed Share Capital: An Overview."
Share Capital: This term signifies the total funds a company raises by selling equity (stocks) to investors, granting them ownership stakes in the company in exchange for monetary investments. It serves as the primary source of equity financing and can be generated through the sale of common or preferred shares.
Common Stock: This type of stock gives shareholders voting rights and involvement in significant company decisions. While dividends on common shares are not obligatory, companies may choose to pay them.
Preferred Shares: Unlike common shares, preferred shares don't grant similar ownership rights. However, they usually include a fixed dividend, paid before any distributions to common shareholders, giving preferred shareholders a higher claim on company assets.
Issued Share Capital: Refers to the value of shares actually sold and held by investors. It corresponds to the amount of subscribed share capital, constrained by the authorized amount a company can issue.
Subscribed Share Capital: Encompasses the value of shares investors commit to buying, typically associated with an IPO. Underwriters often promise a certain number of subscribed shares before the IPO, and this value represents the expressed interest of investors.
Special Considerations:
- Authorized Share Capital: It's the maximum amount of capital a company can raise through share issuance.
- Called-Up vs. Paid-Up Share Capital: Called-up share capital is funds yet to be paid for shares issued, while paid-up capital represents the money already remitted for shares.
Other Capital Types: Debt financing (like business loans, credit lines) and mezzanine financing, despite being under the equity section of the balance sheet, aren't categorized as share capital.
Understanding these concepts is vital in comprehending a company's financial structure, the nature of its equity financing, and the rights and obligations associated with different types of shares issued to investors.
