Paid-Up Capital

What Is Paid-Up Capital?

Paid-up capital is the amount of money a company has received from shareholders in exchange for shares of stock. Paid-up capital is made when a company sells its shares on the primary market straightforwardly to investors, for the most part through an initial public offering (IPO). At the point when shares are bought and sold among investors on the secondary market, no extra paid-up capital is made as proceeds in those transactions go to the selling shareholders, not the issuing company.

Understanding Paid-Up Capital

Paid-up capital, likewise called paid-in capital or contributed capital, is shown up at from two funding sources: the par value of stock and excess capital. Each share of stock is issued with a base price, called its par. Commonly, this value is very low, frequently under $1. Any amount paid by investors that surpasses the par value is viewed as extra paid-in capital, or paid-in capital in excess of par. On the balance sheet, the par value of issued shares is listed as common stock or preferred stock under the shareholder equity section.

For instance, on the off chance that a company issues 100 shares of common stock with a par value of $1 and sells them for $50 each, the shareholders' equity of the balance sheet shows paid-up capital totaling $5,000, consisting of $100 of common stock and $4,900 of extra paid-up capital.

Paid-Up Capital versus Authorized Capital

At the point when a company needs to raise equity, it can't just sell off bits of the company to the highest bidder. Businesses must request permission to issue public shares by filing an application with the agency responsible for the registration of companies in the country of incorporation. In the United States, companies wanting to "open up to the world" must register with the Securities and Exchange Commission (SEC) before issuing a initial public offering (IPO).

The maximum amount of capital a company is given permission to raise by means of the sale of stock is called its authorized capital. Commonly, the amount of authorized capital a company applies for is a lot higher than its current need. This is done with the goal that the company can undoubtedly sell extra shares down the road assuming the requirement for additional equity emerges. Since paid-up capital is just produced by the sale of shares, the amount of paid-up capital can never surpass the authorized capital.

Significance of Paid-Up Capital

Paid-up capital addresses money that isn't borrowed. A company that is completely paid-up has sold every accessible share and consequently can't increase its capital except if it gets money by taking on debt. A company could, in any case, receive authorization to sell more shares.

A company's paid-up capital figure addresses the degree to which it relies upon equity financing to fund its operations. This figure can measure up to the company's level of debt to survey in the event that it has a good overall arrangement of financing, given its operations, business model, and prevailing industry standards.

Features

• Paid-up capital is the amount paid by investors over the par value of a stock.
• Funding for paid-up capital is shown up at from two sources: the par value of stock and excess capital.
• Equity financing is addressed by paid-up capital.
• Paid-up capital is money that a company receives from selling stock straightforwardly to investors.
• The primary market is the main place where paid-up capital is received, generally through an initial public offering.