Called-Up Share Capital: Financial Term for Partially Paid Shares

A comprehensive overview of Called-Up Share Capital, covering its definition, historical context, key components, types, importance, examples, related terms, and frequently asked questions.

Definition

Called-Up Share Capital refers to the portion of the issued share capital of a company for which payment has been requested from shareholders. It involves shares that are partly paid, and the amount called up is the portion of the share’s price that shareholders have been asked to pay.

Historical Context

The concept of Called-Up Share Capital dates back to the early days of corporate finance when companies began to issue shares to raise capital. Initially, shares were often issued on an installment basis where shareholders were required to pay a portion of the share’s price up front and the balance as called upon by the company.

Types of Share Capital

• Issued Share Capital: The total value of shares that a company has issued to shareholders.
• Called-Up Share Capital: The portion of issued share capital that shareholders have been asked to pay.
• Paid-Up Share Capital: The amount of money shareholders have fully paid for their shares.
• Uncalled Share Capital: The portion of issued share capital that has not yet been called up by the company.

Key Events

• Initial Public Offering (IPO): Companies often call up a portion of the share price at the time of IPO.
• Subsequent Capital Calls: Companies may call up the remaining balance of share capital as needed, which can be linked to company milestones or financial needs.

Detailed Explanations

When a company issues shares, they may not require the full payment of the share price immediately. Instead, they call up portions of the share price as needed. This allows the company to manage its capital requirements more efficiently and provides shareholders with flexibility in their financial commitments.

Mathematical Formulas and Models

Called-Up Share Capital Formula:

$$ \text{Called-Up Share Capital} = \text{Number of Shares Issued} \times \text{Call Price per Share} $$

For example, if a company issues 1,000 shares with a call price of $5 per share, the Called-Up Share Capital would be:

$$ 1,000 \times 5 = \$5,000 $$

Charts and Diagrams

    graph TB
	    A[Issued Share Capital] --> B[Called-Up Share Capital]
	    B --> C[Paid-Up Share Capital]
	    B --> D[Uncalled Share Capital]

Importance and Applicability

Called-Up Share Capital is crucial for understanding a company’s financial health and capital structure. It reflects the funds that the company has requested and can potentially call upon to meet its financing needs. This practice is common in industries where large-scale investments are required in stages.

Examples

• Construction Companies: Often call up share capital in phases corresponding to project milestones.
• Startups: May issue shares and call up capital as they meet funding milestones.

Considerations

• Investor Relations: Companies must maintain clear communication with investors regarding call schedules to manage expectations.
• Financial Planning: Proper scheduling of capital calls ensures that the company has adequate liquidity without overburdening shareholders.

Related Terms

• Paid-Up Share Capital: The amount fully paid by shareholders on the shares issued to them.
• Issued Share Capital: The total value of shares a company has issued to its shareholders.
• Authorized Share Capital: The maximum value of shares that a company can legally issue.

Comparisons

• Called-Up vs. Paid-Up Share Capital: Called-Up Share Capital is the requested amount from shareholders, whereas Paid-Up Share Capital is the amount that has actually been paid by the shareholders.

Interesting Facts

• The practice of calling up share capital allows companies to remain solvent by ensuring they receive funds as and when required, rather than all at once.
• During the dot-com boom, many companies utilized phased capital calls to manage rapid growth.

Inspirational Stories

• Apple Inc.: In its early days, Apple called up capital as it reached key product development milestones, ensuring it had adequate funds to innovate without placing undue pressure on early investors.

Famous Quotes

• “Capital, like a river, must keep flowing.” - Anonymous

Proverbs and Clichés

• “Don’t put all your eggs in one basket” (applies to gradual capital calls rather than a single lump sum investment).

Expressions, Jargon, and Slang

• Call-Up: Requesting a portion of the unpaid share capital from shareholders.
• Capital Call: Another term for call-up, commonly used in the venture capital and private equity industries.

FAQs

What happens if a shareholder does not pay a called-up share capital?

The company may take legal action, and the shares could be forfeited.

Can a company call up share capital in installments?

Yes, companies often call up capital in several installments based on their financial needs.

Is Called-Up Share Capital the same as Authorized Share Capital?

No, Authorized Share Capital is the maximum amount a company can issue, while Called-Up Share Capital is the portion shareholders have been asked to pay.

References

1. Bragg, Steven M. “Accounting for Called-Up Share Capital.” Accounting Tools, 2021.
2. Kaplan Financial Knowledge Bank. “Called-Up Share Capital Definition.” Kaplan, 2020.
3. ICAEW. “Understanding Share Capital.” Institute of Chartered Accountants in England and Wales, 2019.

Summary

Called-Up Share Capital is a vital concept in corporate finance, representing the portion of share capital that shareholders have been requested to pay. It plays a significant role in financial planning and corporate governance. Understanding the differences between Called-Up, Paid-Up, and Issued Share Capital is crucial for stakeholders in assessing a company’s financial stability and investment strategy.