From outstanding share capital, paid-up share capital to called-up share capital we've explained it all in our latest video from the #LearnWithUpstox series.
Welcome to our new series, Learn with Upstox!
I’m Aaditya Iyengar and in this series, we’ll be discussing some key aspects of fundamental analysis, corporate actions and some important general concepts about the stock market.
Today we’re going to discuss – what is capital? What are the different types of capital? And how are they represented on a balance sheet?
Let’s get to it!
What is share capital?
You already know that no company can function without capital. Capital means money. A company raises capital either by taking a loan or via investors and the stock market. Let’s consider the second case here. The outstanding share capital of a company is the finance provided to it by the shareholders.
Let’s say, Infosys has the share capital of Rs.2,200 crores. It means that the investors put in Rs. 2,200 crores from their own pockets to finance Infosys and its future plans. In the process, they became part owners of the firm and the prosperity that it promised them for the years to come.
What are the types of share capital?
Share capital is of 2 types, either paid-up share capital or called-up share capital.
In terms of paid-up capital, say you buy Infosys shares from another person. Tomorrow, Infosys doesn’t call you up, saying that, “You are our investor, so give us money.” These shares are paid-up, which means the money was already given to the company at the time of subscription. Now you’re only paying for ownership.
On the other hand, called-up capital isn’t fully paid for. As an owner of these called-up shares, you might have to pay some money in the future if the company announces a date. Many investors find this option attractive because you don’t really have to give a huge amount up front.
Here’s a small example of this – The recent Rights Issue for Reliance was done in such a flexible manner. Investors only paid 25% of the Rs. 1,257 of the Rights Issue. The company said that investors could give the rest of the 75% in the following fiscal year. In this case, shares weren’t entirely paid-up for and the company will demand the remaining amount of money next year.
That’s it for now. Thank you so much for watching our video on outstanding share capital, in our series, Learn with Upstox. I hope you learned something today.
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