Issued share capital
Issued share capital is the nominal value of the actually issued shares. When issuing shares, the enterprise receives remuneration in cash or as another valuable component of the company. The price of the first issue shares is a matter of negotiations, but where the company's shares are yet listed on the stock exchange, the market price is going to be an important element in the valuation of new issues (D. Needham i in. 1999, p. 102).
It's also "money that company has already raised from shareholders" (Cambridge University 2011, p. 462)
The part of the issued share capital is subscribed capital that is actually subscribed by the public along with the evoked value of the shares. They are also issued other than cash for various reasons and issued as bonus shares which should also be awarded. Shares for which calls are overdue should also be demonstrated by deducting from the capital established. Shares lost due to non-payment must be reported separately. If lost shares are issued again in full or in part, in the case of profits they should be transferred only to the reserve capital account (V.K. Goyal 2007, p. 200).
"The share capital is the capital of a company which is divided into shares which are then bought and owned by the shareholders" (F. Wood, S. Robinson 2009, p. 467).
There are two main types of share capital, namely (F. Wood, S. Robinson 2009, s 467):
- Authorised share capital - the total share capital that the company could issue, also known as nominal capital.
- Issued share capital - the quantity of share capital issued and intended for shareholders.
If all approved share capital was issued, these items are the same. The share capital is included in the balance sheet as additional information to the accounts, while the issued capital is incorporated in the Financed section. The amount of unissued capital can be larger than the share capital if the entire share capital wasn't issued. The difference between them is unissued capital (F. Wood, S. Robinson 2009, p. 467).
The share capital could be considered the company's capital, subject to certain rules regarding the reduction, redemption, and investment of its own company's shares (D.J. Cooke 2011, p. 82).
Authorised share capital is the max number of shares and their value that directors may issue in accordance with the company's statute. The only possibility to increase it is voting by shareholders at the general meeting. By this, they can get assured that share issues are accurately undertaken in relation to the company's targets which could be keeping their company's proportional ownership. The consent to increase the share capital is usually related to detailed plans to enable financing of business development (D. Needham i in. 1999, p. 102).
- A company that issues new shares for the first time is an example of issued share capital. The company will receive remuneration in the form of money or other assets in exchange for the issued shares. The price of the new shares is based on the market price of the existing shares and the value of the company's assets.
- A company that issues additional shares to raise capital is another example of issued share capital. In this case, the company will receive money or other assets in exchange for the issued shares. The price of the new shares is based on the market price of the existing shares, the value of the company's assets, and the amount of capital the company is looking to raise.
- A company that issues shares through a rights issue is also an example of issued share capital. In this case, shareholders are given the option to purchase additional shares at a discounted price. The company will receive money or other assets in exchange for the issued shares. The price of the new shares is based on the discounted value of the existing shares, the value of the company's assets, and the amount of capital the company is looking to raise.
Issued share capital has a number of advantages for companies. These include:
- Increased capital: Issued share capital provides companies with additional capital which can be used for growth or to fund operations. This allows companies to expand their operations and pursue new opportunities.
- Reduced debt burden: By issuing share capital, companies can reduce the amount of debt they take on, which can help to reduce the financial burden on the business.
- Tax benefits: Issuing share capital can provide companies with tax benefits, such as the ability to offset losses against future profits. This can help to reduce the amount of tax the company has to pay.
- Increased liquidity: Issuing share capital can increase the liquidity of a company’s shares, as more shares are available for trading on the stock exchange. This can help to make the company more attractive to investors.
- Increased visibility: Issuing share capital can also make a company more visible to potential investors, as the company will be listed on the stock exchange. This can help to attract more investment and increase the company’s market value.
Issued share capital has certain limitations that should be taken into consideration. These include:
- Lack of liquidity - Issued share capital may be difficult to liquidate, as there is no guarantee that investors will be willing to buy the shares. This lack of liquidity can make it difficult for companies to access capital when needed.
- Dilution of ownership - Issued share capital can lead to dilution of ownership, as more shares are issued and the original shareholders own a smaller percentage of the company.
- Cost - Issuing shares can be expensive, as there can be fees associated with legal, accounting and other services.
- Increased competition - Issuing shares can lead to increased competition, as more shareholders mean more stakeholders who can influence decision-making.
One of the other approaches related to Issued share capital is the following:
- Authorised share capital - this is the total amount of shares that are authorised by the company and can be issued. It is the maximum amount of shares that can be issued by the company and is usually set out in the company's Articles of Association.
- Paid-up share capital - this is the amount of share capital that has been paid up by the shareholders. This is the amount of money that the shareholders have actually paid to the company in exchange for the shares.
- Share premium - this is the extra amount that the shareholders pay over and above the nominal value of the shares. This is usually paid when the shares are issued and is used to pay for the costs of setting up the company.
- Treasury shares - these are shares that have been issued by the company but are then bought back by the company. These shares are not cancelled, but are held in the company's treasury and can be re-issued in the future.
In summary, Issued share capital is the nominal value of the actually issued shares and is related to other approaches such as authorised share capital, paid-up share capital, share premium and treasury shares.
| Issued share capital — recommended articles |
| Property Dividend — Franked Dividend — External sources of finance — Accumulated Earnings Tax — General reserve — Contingent consideration — Asset sales — Dissenters right — Contributed Surplus |
References
- Cambridge University (2011), Cambridge Business English Dictionary, Cambridge University Press, Cambridge, p. 462
- Cooke D.J. (2011), Private Equity: Law and Practice, Sweet & Maxwell, London, p. 82
- Goyal V.K. (2007), Corporate Accounting, Excel Books, New Delhi, p. 200
- Needham D. (1999), Business for Higher Awards, Heinemann Educational Publishers, Oxford, p. 102
- Wood F., Robinson S. (2009), Book-keeping and Accounts, Pearson Education Limited, Harlow, p. 467
Author: Radosław Cieślik
