SHARE CAPITAL OF A COMPANY

GHULAM MURTAZA KORAI IoBM

SHARE CAPITAL OF A COMPANY

Authorized capital is the limit to the amount of

capital the company is allowed to raise and that's usually decided at the formation of the company .Or if extra capital is needed beyond that which the company is authorized to raise (its authorized capital), upon application to the registrar of companies, the authority grants the company the right to raising extra capital (increase in authorized capital).
So if for instance you form a ABC Ltd Company

with an authorized capital of $1,000,000 it means you are allowed to raise (through issue of shares or acquiring assets) up to $1,000,000. That's your

SHARE CAPITAL OF A COMPANY

The authorized capital of a company

(sometimes referred to as the authorized share capital, registered capital or nominal capital is the maximum amount of share capital that the company is authorized by its constitutional documents to issue (allocate) to shareholders. Part of the authorized capital can (and frequently does) remain unissued. This number can be changed by shareholders' approval. The part of the authorized capital which has been issued to shareholders is referred to as the issued share capital of the company.

SHARE CAPITAL OF A COMPANY

A share is a single unit of ownership in a corporation,

mutual fund, or other organization. A joint stock company divides its capital into shares, which are offered for sale to raise capital, termed as issuing shares. Thus, a share is an indivisible unit of capital, expressing the proprietary relationship between the company and the shareholder. The denominated value of a share is its face value: the total capital of a company is divided into number of shares. In financial markets, a share is a unit of account for various financial instruments including stocks (ordinary or preferential), and investments in limited partnerships, and real estate investment trusts. The common feature of all these is equity participation (limited in the case of preference shares).

SHARE CAPITAL OF A COMPANY

The income received from shares is known as a dividend. A shareholder, also known as a stockholder, is a person who owns shares of a certain company or organization, and is thus a part-owner of the company. The process of purchasing and selling shares often involves going through a stockbroker as a middle man.

SHARE CAPITAL OF A COMPANY

However upon formation of company, it is usual

for directors and founding members to subscribe to Rs.20 worth of shares each. The company would issue only 2 x Rs.10 shares to each director subscriber . It would thus have issued 4 shares at 2 shares per director for Rs.20 each director (Rs.10 per share) issued and paid up by the 2 directors making it Rs.40 paid up capital company. The balance remaining shares remain in the authorized category. When you need to raise more money and bring in newer directors you issue from the remainder unissued capital of the company.

Definition of 'Paid-Up Capital

The amount of a company's capital that has been

funded by shareholders. Paid-up capital can be less than a company's total capital because a company may not issue all of the shares that it has been authorized to sell. Paid-up capital can also reflect how a company depends on equity financing.
Paid-up capital is money that a company has received

from the sale of its shares, and represents money that is not borrowed. A company that is fully paid-up has sold all available shares, and thus cannot increase its capital unless it borrows money through debt or is authorized to sell more shares.

Stock
A portion of ownership in a corporation. The holder of

a stock is entitled to the company's earnings and is responsible for its risk for the portion of the company that each stock represents. There are two main classes of stock: common stock and preferred stock. Common stock holders have the right to vote on major company decisions, such as whether or not to merge with another corporation, and receive dividends determined by management. Preferred stock holders do not usually have voting rights, but receive a minimum dividend. Stock may be bought or sold, usually, though not always, in the context of a securities exchange. It is important to note that a single share of a stock usually represents only a tiny amount of ownership, and, therefore, most stocks are traded in batches of 100.

Bond
A security representing the debt of the company or

government issuing it. When a company or government issues a bond, it borrows money from the bondholders; it then uses the money to invest in its operations. In exchange, the bondholder receives the principal amount back on a maturity date stated in the indenture, which is the agreement governing a bond's terms. In addition, the bondholder usually has the right to receive coupons or payments on the bond's interest. Generally speaking, a bond is tradable though some, such as savings bonds, are not. The interest rates on Treasury securities are considered a benchmark for interest rates on other debt in the United States. The higher the interest rate on a bond is, the more risky it is likely to be.

Initial Public Offering

The first price for which a company offers to sell

stock in itself when it moves from private ownership to public trade. More generally, it refers to the actual first sale of stock to the public. Small companies looking for a new source of financing offer most IPOs, but large companies who wish to be publicly traded can offer them as well. An IPO is generally a risky investment, because one does not know how much demand will exist for the stock after its initial offering; the risk comes from the uncertainty about the stock's resale value. See also: Publicly-traded company.

Primary Market
The market in which new, as opposed to existing,

securities are sold. Investors who purchase shares in a new security issue are purchasing them in the primary market. Investors who buy stocks and bonds in the primary market usually are not required to pay brokerage commissions because fees for selling the issue are built into its price and are absorbed by the issuer. The primary markets are where investors can get first crack at a new security issuance. The issuing company or group receives cash proceeds from the sale, which is then used to fund operations or expand the business. Exchanges have varying levels of requirements which must be met before a security can be sold.

Primary Market
Once the initial sale is complete, further trading is

said to conduct on the secondary market, which is where the bulk of exchange trading occurs each day. Primary markets can see increased volatility over secondary markets because it is difficult to accurately gauge investor demand for a new security until several days of trading have occurred.

Secondary market
A market where investors purchase securities or

assets from other investors, rather than from issuing companies themselves. The national exchanges - such as the New York Stock Exchange and KSE are secondary markets.

Secondary market
A newly issued IPO will be considered a primary

market trade when the shares are first purchased by investors directly from the underwriting investment bank; after that any shares traded will be on the secondary market, between investors themselves. In the primary market prices are often set beforehand, whereas in the secondary market only basic forces like supply and demand determine the price of the security.

stock exchange
Organized and regulated financial market where securities (bonds, notes, shares) are bought and sold at prices governed by the forces of demand and supply. Stock exchanges basically serve as (1) primary markets where corporations, governments, municipalities, and other incorporated bodies can raise capital by channeling savings of the investors into productive ventures; and (2) secondary markets where investors can sell their securities to other investors for cash, thus reducing the risk of investment and maintaining liquidity in the system. Stock exchanges impose stringent rules, listing requirements, and statutory requirements that are binding on all listed and trading parties. Trades in the older exchanges are conducted on the floor (called the 'trading floor') of the exchange itself, by shouting orders and instructions (called open outcry system).

stock exchange
On modern exchanges, trades are conducted

over telephone or online. Almost all exchanges are 'auction exchanges' where buyers enter competitive bids and sellers enter competitive orders through a trading day. Some European exchanges, however, use 'periodic auction' method in which round-robin calls are made once a trading day. The first stock exchange was opened in Amsterdam in 1602; the three largest exchanges in the world are (in the descending order) New York Stock Exchange (NYSE), London Stock Exchange (LSE), and the Tokyo Stock Exchange (TSE). Called also stock market.

Why should I increase my companys paid-up capital?

Normally, there are FOUR (4) REASONS where

the company may find itself in the situation it needs to increase its paid-up capital: 1. Requested by Bank 2. A project tender requirement 3. License requirement 4. Corporate image

Reason 1 to increase paid-up capital : Requested by Bank

As part of the terms and conditions in the Letter

of Offer from Bank for business loan application submitted by the Company, the company is required to increase its paid-up capital as required by the Bank. For example, a company is required to increase its paid-up capital from RM1,000 to RM200,000 as part of the requirement for the RM1,000,000 bank loan application from a bank.

Reason 2 to increase paid-up capital : Project Tender

As one of the qualification requirement, the

company is to have at least certain amount of paid-up capital before it can submit any project tender document. For example, a company is required to have at least RM100,000 paid-up capital to be prequalified for certain projects from Petronas

Reason 3 to increase paid-up capital : License application

A company operating in certain industries may be

required to have certain licenses before they can commence its business operations. For example, Agensi Pekerjaan Business. Or a company need to have at least RM500,000 paid-up capital before they can apply working visa for its foreign staff with Immigration Department.

Reason 4 to increase paid-up capital : Corporate Image

A 2-dollar company is not better than a company

with paid-up capital of Rs100,000!