Table Of Contents
Examples
Check out the below examples to understand the concept better:
Example #1
Suppose Rachel owns a cosmetics company and issues two million shares at an individual price of $4, totaling $8 million in share capital. Rachel and other board members decided that they did not need the whole capital immediately; therefore, they asked investors to pay only $2 per share, which then amounted to $4 million. Rachel uses this capital for her business operations, new projects, and market expansion. The rest of the $4 million remains as uncalled capital.
After nine months, Rachel believes she needs more funds, and so after discussing it with their board members, she issued a request asking investors to deposit the rest of $4 million.
This is where the concept of called-up share capital comes into play. This is a simple example, but in the real financial world, many internal processes and factors need to be considered and accounted for before initiating any such actions.
Example #2
Suppose a company makes a share purchase arrangement with a shareholder where the shareholder is allotted one thousand shares of the company, which amounts to $90,000, given that each share was priced at $90. As per the agreement, the investor pays half of the amount upfront, which is $45,000 upfront, with the arrangement of paying the rest of the amount later.
After four months, the company issues a call-up notice for the investor to make the rest of the payment, which is now the called-up share capital. However, the investor defaults on the payment. The legalities and consequences are generally drafted in the agreement and in accordance with it. The company penalizes the investor with interest charges, late fees, penalties, and other payments. The investor still defaults, which eventually leads to forfeiture of shares. This example focuses on the consequences faced by a shareholder in case they default on payments.
Frequently Asked Questions (FAQs)
No, this capital should never be paid through dormant accounts. If an investor has a bank account that has not been used for a long period, it becomes dormant. While paying the called-up share capital, such accounts can create transactional errors and payment issues, so they should not be used for it.
Yes, the paid-up capital can exceed the called-up share capital. This can happen because if the company receives full payment for the called-up capital, it will equal the paid-up capital. Suppose an investor bought shares worth $9000 but initially paid only $4500. After some time, the company demands another portion, and the investor pays another $2250. In this scenario, the investor has already paid $6750, which exceeds the called-up share capital.
The former is the payment request from investors who have only paid a portion of the total share capital. Now, the company is asking for the remaining amount. In contrast, subscribed capital is that part of the issued capital the public has subscribed to. When the issued capital and subscribed capital become equal, it simply means that the public subscription is fully subscribed.
Recommended Articles
This article has been a guide to what is Called-Up Share Capital. We explain its examples and compare it with paid-up share capital and uncalled share capital. You may also find some useful articles here –