Authorised, issued and paid-up share capital

A limited company’s share capital is rarely a single number. You find several figures that all use the word “capital”, each measuring the company’s shares from a different angle. Three matter most at this level: authorised, issued and paid-up share capital.

They are easily confused because all three describe the same shares, and in a simple case they can even be the same amount. But each answers a different question. How many shares is the company allowed to create?

How many has it given to owners? How much money has been collected for them? Think of them as layers, each inside the last.

Why share capital has layers

A sole trader simply pays money into the business, and the capital account records the stake as one figure. A company raises the owners’ money by issuing shares, with permission, and often in stages.

So at any moment there is a gap between what the company may raise, what it has raised, and what it actually holds. Each of the three terms captures one of those points.

Authorised share capital: the ceiling

Authorised share capital, sometimes called nominal or registered capital, is the maximum share capital the company is permitted to issue. The limit is written into the company’s founding documents.

It is not money that exists. A company might be authorised to issue RM1,000,000 of shares yet have issued only part of that.

The authorised figure says nothing about the company’s worth or cash. It shows only how far the company may go before it needs permission to raise the ceiling. Think of the size of a tap, not the water that has flowed through it.

A note for Malaysian students

Malaysian companies no longer have authorised share capital. The Companies Act 2016 removed it, along with the nominal (par) value of shares.

Textbooks and practice questions written in the UK style still use both terms, so learn them for exam answers. Just know that a real Malaysian company’s accounts will not show them.

Issued share capital: shares actually put out

Issued share capital is the part of the authorised amount that the company has created and allotted to shareholders. If the ceiling is RM1,000,000 and the company has issued RM400,000 of shares, then RM400,000 is its issued share capital, and RM600,000 of the ceiling is unused.

Issued capital is where reality begins. These shares exist, they have owners, and they carry the rights and risks of ownership.

Anything under the ceiling but not issued is only potential. It has no owner, brings in no money, and is not a resource of the business.

Called-up and paid-up: how much has been collected

Issuing a share and collecting the money for it are not always the same event. A company can issue shares and ask for payment in instalments.

The amount it has asked shareholders to pay so far is called-up capital. The amount they have actually paid is paid-up capital.

Often a company calls for the full amount at once and shareholders pay promptly, so called-up and paid-up equal the issued figure. But if a call has been made and not yet met, paid-up capital is the smallest layer, the money the company actually holds.

Paid-up capital measures cash received for shares. Issued capital measures shares created, whether fully paid or not.

The nominal value that links the layers

Every share has a nominal value, a face value fixed when the share is created, such as RM1 per share. All three layers are measured using nominal value, so they can be compared on one scale. Authorised capital is the nominal value times the greatest number of shares allowed.

Issued capital is the nominal value times the number issued. Paid-up capital is how much of that nominal value has been collected.

The price a share later sells for between investors does not change these figures. Learners often think a rise in a share’s value must lift the company’s share capital.

It does not. Share capital is tied to nominal value, whatever one investor pays another for a second-hand share.

Why the three figures usually differ

A wide gap between authorised and issued capital means the company has room to raise more later without fresh permission. A gap between issued and paid-up capital means part of the money for issued shares has not yet been collected.

Neither gap signals trouble. They show a company part-way through raising money. What would be wrong is to read the authorised figure as money the company has, or to treat issued capital as cash in the bank.

How the layers appear in the accounts

Only part of this reaches the face of the statement of financial position. The capital that has been issued and paid up is reported within equity, as the owners’ real stake alongside reserves and retained earnings.

Authorised capital is a permission, not a resource, so it is not counted in assets or equity. If it is shown at all, it appears as a note. Keeping the ceiling out of the totals stops a limit being mistaken for money.

Three nested circles

Picture three circles, one inside the next. The outer circle is authorised capital: all the company may issue.

Inside it is issued capital: the shares actually created. Inside that is paid-up capital: the money actually collected.

Each circle is equal to or smaller than the one around it, and each is more real, moving from permission, to shares that exist, to cash received.

If the layers of share capital keep collapsing into one figure in your child’s mind, one of our teachers can pull them apart with labelled worked examples. Book a trial class