Subscribed Share Capital
Definition
Subscribed share capital represents the amount of a company’s total issued share capital that investors have formally agreed to purchase. Subscribed share capital can be fully paid, partially paid, or unpaid, depending on the agreement between the company and its investors. While subscribed share capital indicates a commitment from shareholders, not all payments may have been received yet.
Examples
-
Initial Public Offering (IPO):
- When a company goes public through an IPO, it issues shares that investors can purchase. Suppose a company issues 1,000,000 shares at $10 each, and investors commit to purchasing all of these shares. Here, the subscribed share capital would be $10,000,000, even if some investors have not yet paid the full amount.
-
Rights Issue:
- Suppose a company issues additional shares through a rights issue where existing shareholders are given the right to purchase more shares at a discounted price. If shareholders subscribe to 500,000 shares at $5 each, the subscribed share capital would be $2,500,000, regardless of whether the payments are complete.
Frequently Asked Questions (FAQs)
What is the difference between subscribed share capital and issued share capital?
Issued share capital represents the total value of shares that a company has offered for sale, whereas subscribed share capital is specifically the portion of these that investors have committed to purchasing. Thus, subscribed share capital is a subset of issued share capital.
Can subscribed share capital be changed over time?
Yes, subscribed share capital can change over time through actions such as additional share issues, buybacks, rights issues, or the company relaxing the terms for subscription payments.
What happens if shareholders do not fully pay for subscribed shares?
If shareholders fail to make full payments on their subscribed shares, the company can enforce legal proceedings to recover the unpaid amounts. Alternatively, the company may forfeit the shares if the terms of subscription allow.
How does subscribed share capital affect a company’s financial statements?
Subscribed share capital appears on the equity side of the balance sheet, typically under the “Share Capital” section. It reflects investor commitments and may influence the company’s capital structure and perceived financial stability.
Is there a legal minimum for subscribed share capital?
Legal requirements for minimum subscribed share capital vary by jurisdiction. Some countries may impose minimum capital requirements as part of corporate regulations, while others may not.
Related Terms
Issued Share Capital
Represents the total value of shares that have been offered for sale by a company and can be either fully or partially subscribed by investors.
Authorized Capital
The maximum amount of share capital that a company is authorized by its corporate charter to issue to shareholders.
Paid-Up Capital
The amount of money a company has received from shareholders in exchange for shares of stock, which may or may not equal the subscribed share capital.
Total Equity
The total amount of shareholders’ funds in a company, comprising paid-up capital, retained earnings, share premium, and reserves.
Online References
- Investopedia: Subscribed Share Capital
- The Balance: Issued Share Capital
- Corporate Finance Institute (CFI): Authorized, Issued, Subscribed, and Paid-Up Capital
Suggested Books for Further Studies
- “Corporate Finance” by Stephen A. Ross, Randolph W. Westerfield, and Jeffrey Jaffe
- “Principles of Corporate Finance” by Richard A. Brealey and Stewart C. Myers
- “Financial Markets and Corporate Strategy” by Mark Grinblatt and Sheridan Titman
- “Accounting for Dummies” by John A. Tracy
- “Understanding Financial Statements” by Lyn M. Fraser and Aileen Ormiston
Accounting Basics: “Subscribed Share Capital” Fundamentals Quiz
Thank you for embarking on this journey through our comprehensive accounting lexicon and tackling our challenging sample exam quiz questions. Continue expanding your financial knowledge!
