Definition of Called-up Share Capital
Called-up share capital is the portion of a company’s issued share capital that shareholders have been requested to pay. When a company issues partly paid shares, it means that shareholders initially pay only part of the share’s face value, and the company can call for the remaining amount to be paid at a later date. The amount that has been called up, but not necessarily paid, is known as called-up share capital.
Examples of Called-up Share Capital
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Example 1:
- Scenario: A company issues 1,000 shares at $10 each, but shareholders are initially required to pay only $4 per share as partly paid-up shares.
- Called-up Share Capital: If the company later calls for another $3 per share, the called-up share capital is $7,000 (1,000 shares * $7).
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Example 2:
- Scenario: XYZ Corporation issues 500 shares of $20 each with $8 paid initially.
- Called-up Share Capital: If the directors call for an additional $5 per share, the called-up share capital becomes $6,500 (500 shares * $13).
Frequently Asked Questions
What is the difference between called-up share capital and paid-up share capital?
- Called-Up Share Capital is the amount requested by the company that shareholders need to pay, whereas Paid-Up Share Capital is the portion that has been fully paid by the shareholders.
Can a shareholder refuse to pay the called-up share capital?
- Shareholders generally cannot refuse to pay the called-up amount as it is part of their contractual obligation when they subscribe to the shares.
What happens if a shareholder does not pay the called-up share capital?
- If a shareholder defaults on the payment, the company may have the right to forfeit their shares and sell them to recover the unpaid amount.
Is called-up share capital listed on the balance sheet?
- Yes, the called-up share capital is recorded in the equity section of the company’s balance sheet until it is fully paid up.
Related Terms
Issued Share Capital
Issued Share Capital is the total value of shares that have been issued to shareholders, regardless of whether they are fully paid or partly paid.
Partly Paid Shares
Partly Paid Shares are those for which shareholders have not fully paid the face value. The unpaid portion can be called up by the company at a future date.
Paid-Up Share Capital
Paid-Up Share Capital is the amount of called-up share capital that shareholders have already paid. This represents the actual funds received by the company.
Online References
Suggested Books for Further Studies
- “The Essentials of Corporate Finance” by Stephen A. Ross - This book provides a comprehensive overview of corporate finance, including topics on share capital.
- “Financial Accounting: An Introduction” by Pauline Weetman - A detailed exploration into financial accounting principles with sections covering share capital.
- “Company Law” by Alan Dignam and John Lowry - Explores legal frameworks around share capital, including called-up and paid-up shares.
Accounting Basics: “Called-up Share Capital” Fundamentals Quiz
### What is called-up share capital?
- [ ] The total value of shares issued by the company.
- [ ] The prospective future dividend planned by the company.
- [x] The amount requested by the company that shareholders need to pay.
- [ ] The shares bought back by the company from the market.
> **Explanation:** Called-up share capital is the amount requested by the company that shareholders need to pay.
### What distinguishes called-up share capital from paid-up share capital?
- [ ] Paid-up share capital includes future investments, called-up doesn't.
- [x] Called-up share capital is the amount shareholders are requested to pay, paid-up share capital is what shareholders have already paid.
- [ ] There is no difference; both terms are synonymous.
- [ ] Paid-up share capital is only applicable to bonds.
> **Explanation:** Called-up share capital is the amount shareholders are requested to pay, while paid-up share capital is the amount shareholders have already paid.
### What happens if shareholders fail to pay the called-up capital?
- [ ] They receive a dividend cut.
- [x] Their shares might be forfeited.
- [ ] They get their payments deferred.
- [ ] The company dissolves the shares.
> **Explanation:** Shareholders who fail to pay called-up capital may have their shares forfeited, and the company can sell those shares to recover the unpaid amount.
### Where is called-up share capital recorded?
- [ ] Income Statement
- [ ] Cash Flow Statement
- [ ] Depreciation Schedule
- [x] Balance Sheet
> **Explanation:** Called-up share capital is recorded in the equity section of the company’s balance sheet.
### Can a company issue partly paid shares?
- [x] Yes, companies can issue partly paid shares.
- [ ] No, all shares must be fully paid before issuance.
- [ ] Only in special circumstances.
- [ ] Partly paid shares do not exist.
> **Explanation:** Companies can issue partly paid shares, where shareholders pay a portion of the total share value initially.
### What is meant by issued share capital?
- [ ] Shares that are available for future issuance.
- [ ] Shares that have been repurchased from the market.
- [x] The total value of shares that have been issued to shareholders.
- [ ] The portion of partly paid shares.
> **Explanation:** Issued share capital refers to the total value of shares that have been issued to shareholders.
### What signifies 'partly paid shares'?
- [x] Shares for which shareholders have not fully paid the face value.
- [ ] Shares that have been issued but are not callable.
- [ ] Shares that are fully self-amortizing.
- [ ] Shares intended for employees only.
> **Explanation:** Partly paid shares are those for which shareholders have not fully paid the face value.
### Which of the following scenarios could change called-up share capital?
- [ ] Issuing debentures.
- [x] Calling for additional money on partly paid shares.
- [ ] Launching a public bonds issue.
- [ ] Declaring a high dividends payout.
> **Explanation:** Calling for additional money on partly paid shares increases the called-up share capital as shareholders pay more.
### If a company calls for additional payment on shares, what capital terminology is being modified?
- [ ] Debenture capital.
- [ ] Internal capital.
- [ ] Retained earnings.
- [x] Called-up share capital.
> **Explanation:** The action of calling for additional payment on shares modifies the called-up share capital.
### Are shareholders obligated to pay called-up capital?
- [x] Yes, because it is a contractual obligation.
- [ ] No, they can choose to defer indefinitely.
- [ ] Only if the company's profits surpass a certain threshold.
- [ ] They can partially pay only up to half the requested amount.
> **Explanation:** Shareholders are obligated to pay called-up capital as part of their contractual agreement when they subscribe to the shares.
Thank you for delving into the intricate details of called-up share capital. Armed with this knowledge, you’re better prepared for broader corporate finance discussions!
