Here's a breakdown of the concept of subscribed capital:
Authorized Share Capital:
A company's authorized share capital is the maximum number of shares that it is legally permitted to issue. This amount is specified in the company's articles of incorporation or bylaws.
Subscribed Capital:
Subscribed capital is the portion of the authorized share capital that investors have agreed to purchase. When investors subscribe to shares, they enter into a contract with the company agreeing to pay a certain price for a specified number of shares. Subscribed capital is recorded as a liability on the company's balance sheet.
Issued Shares:
Shares are considered issued when they are formally transferred from the company to the investors. Issued shares represent ownership in the company, and shareholders typically receive corresponding share certificates (if they're in physical form) or have their account details reflecting this in the case of electronic shares.
Relationship to Paid-Up Capital:
Subscribed capital may or may not be fully paid up. Paid-up capital refers to the amount of money that investors have actually paid for their subscribed shares. In some cases, investors may agree to pay for their shares over time through installments or calls for funds. The portion of subscribed capital that has not yet been paid up is typically referred to as "uncalled capital."
Significance:
Subscribed capital is important because it reflects the commitments made by investors to provide financial resources to the company. It represents the pool of potential funding that a company can rely on to finance its operations, investments, and other activities. Companies often use subscribed capital as an indication of their financial strength and credibility when seeking loans, partnerships, or other forms of external financing.
Subscribed capital provides a basis for the distribution of ownership rights, voting rights, and dividends among shareholders, as specified in the company's governing documents.
While subscribed capital represents the amount of capital investors have committed to contribute, it does not necessarily mean that all of this capital has been received by the company. Depending on the specific arrangements and regulations governing share issuance, the full amount of subscribed capital may be paid upfront or at specified intervals in the future.