understand and distinguish between issued, called-up and paid-up share capital
5.3 Limited Companies – Share Capital Basics
What is Share Capital?
Think of a company as a big pizza 🍕. The share capital is the total amount of money the company can raise by selling slices (shares) to investors.
1️⃣ Issued Share Capital
Issued shares are the shares that a company has actually offered to the public or to specific investors.
- It shows the maximum amount the company can raise.
- It is a promise to sell shares, but the money may not have been received yet.
📌 Analogy: You have a pizza with 12 slices. You promise to give 8 slices to friends (issued). You haven't handed them out yet.
2️⃣ Called‑up Share Capital
When the company actually asks shareholders to pay for the shares they have agreed to buy, those shares become called‑up.
- Company issues shares.
- Shareholders are notified to pay.
- Shares are now called‑up.
📌 Analogy: You ask your friends to bring the money for the pizza slices they promised to buy. Once they bring the money, the slices are “called‑up”.
3️⃣ Paid‑up Share Capital
When shareholders actually hand over the money, the shares are paid‑up. This is the real cash the company receives.
- Paid‑up capital is the money that goes into the company’s bank account.
- It is the amount that can be used for business activities.
📌 Analogy: Your friends hand over the money for the pizza slices. The pizza shop now has the cash and can bake the pizza.
4️⃣ Quick Comparison Table
| Type | What It Means | Example |
|---|---|---|
| Issued | Shares offered but not yet paid for. | Company offers 10,000 shares at £1 each. |
| Called‑up | Shareholders asked to pay. | Company requests £5,000 from shareholders. |
| Paid‑up | Money actually received. | Shareholders pay £5,000, which goes into the company’s account. |
5️⃣ Exam Tip Box
Tip: When answering exam questions, always state the difference between issued, called‑up and paid‑up capital. Use the pizza analogy to explain the flow of money.
📝 Practice Question: A company has issued 20,000 shares at £2 each. 12,000 shares are called‑up and 8,000 shares are paid‑up. Calculate the amounts for each category.
Answer: Issued = £40,000 (20,000 × £2). Called‑up = £24,000 (12,000 × £2). Paid‑up = £16,000 (8,000 × £2).
6️⃣ Summary Checklist
- Issued capital = shares offered.
- Called‑up capital = shares shareholders are asked to pay for.
- Paid‑up capital = money actually received.
- Remember the flow: Issued → Called‑up → Paid‑up.
Revision
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