Issued Share Capital vs. Subscribed Share Capital: An Overview
Share capital refers to the amount of funding a company raises through the sale of stock to public investors. This means the company grants shareholders a small ownership stake in the company in exchange for monetary investment. Share capital constitutes the main source of equity financing and can be generated through the sale of common or preferred shares.
Common stock is what most people think of when they talk about the stock market. Common, or ordinary, shareholders have voting rights and participate in major company decisions. Although companies at times pay dividends on common shares, they are not required to pay them.
- Share capital is the total of all funds raised by a company through the sale of equity to investors.
- Issued share capital is the value of shares actually held by investors.
- Subscribed share capital is the value of shares investors have promised to buy when they are released.
- Subscribed shared capital is usually part of an IPO.
Preferred shares, also called preference shares, do not entail the same kinds of ownership rights as common shares. However, they generally include a guaranteed dividend each year that must be paid before any dividends can be distributed to common shareholders. In short, though preferred shareholders have fewer rights, they do have a higher claim on company assets.
Although share capital refers to a dollar amount, it is dictated by the number and selling price of a company's shares. For example, if a company issues 1,000 shares for $25 per share, it generates $25,000 in share capital.
Share capital is only generated by the initial sale of shares by the company to investors. If the investor goes on to trade those shares to a third party, any profit made on the sale does not contribute to the issuing company's share capital.
Issued Share Capital
Issued shares are the shares sold to and held by investors of a company. These investors can include large institutions or individual retail investors.
Issued share capital is simply the monetary value of the shares of stock a company actually offers for sale to investors. The number of issued shares generally corresponds to the amount of subscribed share capital, though neither amount can exceed the authorized amount.
When a company prepares to "go public" by issuing stock for the first time, investors can submit an application expressing their desire to participate.
Subscribed Share Capital
Subscribed shares are shares that investors have promised to buy. These shares are usually subscribed as part of an initial public offering (IPO).
Underwriters often promise to deliver a certain number of subscribed shares prior to the IPO. The subscribers are usually large institutional investors and banks. Subscribed share capital refers to the monetary value of all the shares for which investors have expressed an interest.
Share capital can fall into one of several other categories, depending on where the company is in the equity-raising process. They include the following:
Authorized Share Capital
The maximum amount of share capital a company is allowed to raise is called its authorized capital. Though this does not limit the number of shares a company may issue, it does put a ceiling on the total amount of money that can be raised by the sale of those shares.
Called-Up vs. Paid-Up Share Capital
Depending on the business and applicable regulations, companies may issue stock to investors with the understanding the investors will pay at a later date. Any funds due for shares issued but not fully paid for are called-up share capital. Any funds remitted for shares are considered as paid-up capital.
Other types of capital, such as debt financing or mezzanine financing, are not considered share capital. Debt capital includes financing sources such as lines of credit, business loans, and credit card balances. While mezzanine financing, like share capital, is included under the equity section of the balance sheet, it is not considered share capital.