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Paid-Up Capital

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Paid-Up Capital: Hi, Friends Today I am going to share some interesting information on the topic of Paid-Up Capital.

Please go through the article and enjoy reading it.

Paid-Up Capital

Meaning

It is the amount of money. That a company has received from the shareholders in exchange for shares of stock. It is created when a company sells its shares on the main market directly to investors.

Usually through a starting public offering that is IPO. When the shares are bought and sold among the investors on the secondary market. No additional paid-up capital is created as proceeds in those transactions. That is going to the selling shareholders but not the issuing company.

The Understanding of Paid-Up Capital

It is also called Contributed Capital. It is arrived at from two funding sources. The par value of stock and also the excess capital. Each share of stock is issued with a base price and it called its par.

Typically, this value is quite low. Frequently less than the price of  $1. Any amount that is paid by investors that exceed the par value. It is considered additional paid-in capital, or paid-in capital in the excess of par.

On the balance sheet, the par value of issued shares is listed as common stock. The preferred stock is under the shareholder equity section.

For example, if a company issues around 100 shares of common stock. With a par value of around $1 and also sells them for the price of $50 each. The shareholders’ equity of the balance sheet shows that the paid-up capital totaling amount is $5,000. It is consisting of the amount of $100 of common stock. The price of $4,900 of additional Paid-up capital.

It is the money, that a company receives from selling the stock directly to investors. The main market is the only place where this capital is received.

Usually through a starting public offering. Funding for paid-up capital is arrived at from two use. The par value of stock and also excess capital. It is the amount that is paid by investors. Above the par value of a stock. Equity financing is represented by paid-up capital.

Comparison with Authorized Capital

When a company wants to raise equity. Then it cannot simply sell off pieces of the company to the highest bidder. Many Businesses must request permission to issue public shares by filing an application.

With the agency that is responsible for the registration of companies in the country of incorporation. In the United States, many of the companies wanting to “go public” and must register with the Securities. The Exchange Commission that is SEC, before issuing a starting public offering. That also means IPO.

The maximum amount of capital, that a company is given permission to raise. The sale of stock is called its Authorized Capital. Typically, the amount of Authorized Capital from which a company applies is much higher than its current need.

Then this is done so that the company can easily sell additional shares down the road. If the need for more equity arises. Since the Paid-up capital is only generated by the sale of shares. The amount of Paid-up capital can never exceed the Authorized Capital.

Importance

It represents if the money that is not borrowed. A company that is fully paid-up has sold all the available shares. Thus cannot increase its capital. Unless it borrows the money by taking on debt. A company could, however, have received authorization to sell more shares.

A company’s paid-up capital figures out represent the extent. To which it depends on the equity financing to fund its operations. This figure can be compared with the company’s level of debt. To uses if it has a healthy balance of financing. Given its operations, business model, and also existing at a particular time industry standard.

So, this is important information on the topic of Paid-Up Capital. Here I have mentioned the Meaning, The Understanding, The Difference between Paid-Up Capital vs. Authorized Capital, and also the importance of Paid-Up Capital.

If any Queries or Questions is persisting then, please comment on the viewpoints.

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