What is Issued Share Capital?
Issued share capital represents the portion of a company’s authorized share capital that has been allocated, with shares sold to and held by shareholders. It is a key measure in evaluating a company’s equity structure. Issued share capital includes both paid-up capital and subscribed capital.
Key Terms Related to Issued Share Capital
- Subscribed Share Capital: This is the portion of the authorized capital for which investors have committed to purchase shares.
- Authorized Share Capital: The maximum amount of share capital that a company is legally authorized to issue to shareholders.
- Called-Up Share Capital: The portion of the subscribed capital that shareholders are called upon to pay.
- Paid-Up Share Capital: The amount of called-up capital that has been fully paid by shareholders.
- Shares Outstanding: The total shares currently held by all shareholders, including shares held by institutional investors but excluding shares bought back by the company.
Examples of Issued Share Capital
-
Example 1: Company ABC has an authorized share capital of $1,000,000 divided into 1,000,000 shares of $1 each. It has issued 600,000 shares to its shareholders, making the issued share capital $600,000.
-
Example 2: XYZ Corp has authorized share capital of 500,000 shares. It has subscribed and issued 400,000 shares at $2 each. Therefore, its issued share capital is $800,000.
Frequently Asked Questions (FAQs)
What is the difference between issued share capital and authorized share capital?
Authorized share capital is the maximum amount of capital that a company can issue as specified in its corporate charter. Issued share capital is the total value of the shares that have been issued to shareholders from the authorized capital.
Can issued share capital be more than authorized share capital?
No, issued share capital cannot exceed the authorized share capital. Issued share capital is always a subset of authorized share capital.
How is issued share capital different from paid-up share capital?
Issued share capital is the maximum amount of shares that a company has actually allotted to shareholders, while paid-up share capital is the actual amount paid by the shareholders.
What happens if a company buys back some of its shares?
When a company buys back its shares, the number of shares outstanding decreases, but issued share capital does not change. The bought-back shares typically form part of the treasury stock.
How do changes in issued share capital affect a company’s financial statements?
Changes in issued share capital affect the company’s balance sheet under shareholders’ equity. An increase in issued share capital typically results in higher equity, while a buyback could decrease equity.
Related Terms
- Authorized Share Capital: The maximum value of securities that a company can legally issue.
- Subscribed Capital: Part of the authorized capital that investors have agreed to buy.
- Called-Up Capital: Portion of subscribed capital that shareholders are asked to pay.
- Paid-Up Capital: The total amount of called-up capital that is paid by shareholders.
- Preemptive Rights: The rights given to existing shareholders to purchase additional shares before the company offers them to outside investors.
Online References
- Investopedia: Share Capital
- Corporate Finance Institute: Issued Share Capital
- Accounting Tools: Share Capital
Suggested Books for Further Studies
- “Financial Accounting: An Introduction” by Pauline Weetman
- “Principles of Corporate Finance” by Richard A. Brealey, Stewart C. Myers, Franklin Allen
- “Accounting for Non-Accountants: The Fast and Easy Way to Learn the Basics” by Wayne Label
- “Financial Accounting Theory” by William Scott
- “International Financial Reporting and Analysis” by David Alexander and Christopher Nobes
Accounting Basics: “Issued Share Capital” Fundamentals Quiz
Thank you for exploring the concept of issued share capital in-depth and engaging with our quiz to solidify your understanding. We hope this comprehensive guide enriches your knowledge in the realm of accounting and corporate finance!
