Paid-up 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.
If these shares are bought or sold in the secondary market, the money does not go to the company but it goes to the shareholders that are selling the shares. Therefore, no paid-up capital is gained when shares are sold through the secondary market.
Another term you should be aware of while learning about paid-up capital, is authorised capital. Authorised capital refers to the maximum amount of shares the company is allowed to sell. The paid-up capital can be equal to or less than this authorised capital but never more than it.
The companies need to apply to raise an authorised capital. Usually the company will make sure that the authorised capital is more than the current financial need so that a significant amount of paid-up capital can be gained.
What is the importance of Paid-up Capital?
Paid-up capital is the amount of money that the company gains by selling its shares and not the money that is borrowed. So the paid-up capital represents the company’s current status and how dependent the company is on the shares and how easily the company can pay off its debts.
If a company is fully paid, it means the company has sold all its shares and cannot earn more paid-up capital unless they get permission to increase their authorised capital.
Characteristics of Paid-up Capital
If you fund your business using paid-up capital, you do it by selling your own shares and this is a lot different than borrowing money or loaning it as you won’t need to repay the money to anyone.
Another characteristic of paid-up capital is that, even when no repayment is expected, the shareholders may expect a certain amount of capital gains from the company.
Paid-up capital gained by the companies is considered as equities and more equities than debts, is considered as an advantage. So, paid-up capitals are considered by investors while performing fundamental analysis of a company.
