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Types of Capital: Authorized, Issued, Subscribed, and Paid-Up
Authorized, Issued, Subscribed, and Paid-up capital are issues related to the reporting of shares. It is important to divide the total capital earned from the share market into Authorized, Issued, Subscribed, and Paid-up capital to measure the various attributes of a share. These factors may affect the book value of a share and hence are important factors to recognize.
Authorized share capital represents the maximum amount of capital a company can raise from the market. It is the maximum amount a company is permitted or capable of raising from the shareholders in the market. To alter the value of authorized capital, a company needs to alter the memorandum of association. Hence, there are legal hindrances in changing the authorized capital.
Issued capital is a part of authorized capital. It represents the total capital issued by a company out of the total authorized capital. The issued share capital is offered to the shareholders for subscription. The company must however keep a record of issued share capital to counter any legal drawbacks in the case of any financial or legal issue with the issue of shares.
Subscribed Share Capital
Subscribed share capital is a part of the issued share capital. It is the portion of issued share capital that has been actually subscribed by the shareholders.
In case of highly valued companies, there is a high demand for shares and hence the share capital is oversubscribed.
For weak companies, the issued capital is undersubscribed.
The subscribed share capital is therefore related to the market movements.
Paid-up capital is a part of subscribed share capital that has been actually paid to the company by the shareholders. It is the amount the company has in its capacity as an investment from the market. Paid-up capital is of utmost importance because it is the amount the company has for its operational and financial management.
It has been observed that companies often pay more attention to paid-up capital than the other forms because it is the net amount of money the company has in its possession. For a company that is competitive and well-positioned, the paid-up capital is equal to its subscribed capital.
Moreover, as the net worth of a company depends on the paid-up capital, it is a factor that is highly regarded by the companies. The companies that want to improve their bottom-line must pay attention to these forms of funds for the improvement of their financial machinery and profitability.
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