Issued Share Capital refers to the portion of a company’s authorized capital that has been offered and subscribed by shareholders. It represents the actual amount raised by the company through the issuance of shares to investors, both public and private.
Content:
- Issued Share Capital Meaning
- Issued Share Capital Example
- How To Calculate Issued Share Capital?
- Difference Between Authorized And Issued Share Capital
- Benefits Of Issued Capital
- Issued Share Capital – Quick Summary
- Issued Share Capital Meaning – FAQs
Issued Share Capital Meaning
Issued Share Capital is the part of a company’s authorized share capital that has been allocated and subscribed by investors. It signifies the actual capital raised through the sale of shares to the public and private investors, reflecting the equity financing obtained by the company.
This capital is recorded in the company’s financial statements and represents the sum of money that shareholders have invested in exchange for ownership equity. The amount of issued share capital can vary, not necessarily equalling the total authorized capital, depending on the company’s funding requirements and strategies.
The value of Issued Share Capital remains constant unless the company decides to issue more shares or buy back existing ones. It’s a critical aspect of a company’s capital structure, impacting its equity base and shareholder composition. This capital is vital for a company’s growth and operational funding, reflecting the stakeholder’s trust in its potential.
For example: A company with authorized capital of ₹100 crore may issue shares worth ₹60 crore to public and private investors. This ₹60 crore becomes the company’s issued share capital, reflecting actual equity raised.
Issued Share Capital Example
Consider a company, XYZ Corp, with an authorized capital of ₹50 crore. It decides to issue shares worth ₹30 crore to investors. This ₹30 crore represents the Issued Share Capital, the actual amount raised from shareholders for company ownership.
This capital is recorded in XYZ Corp’s balance sheet under shareholders’ equity, indicating the equity investment made by the investors. It’s a crucial metric, as it shows the level of trust investors have in the company’s potential and their willingness to fund its operations and growth.
The difference between the authorized capital (₹50 crore) and the issued share capital (₹30 crore) gives XYZ Corp room to issue additional shares in the future, without altering its authorized capital. This flexibility is essential for raising more funds as the company grows or for other strategic initiatives.
How To Calculate Issued Share Capital?
Issued Share Capital is calculated by multiplying the total number of issued shares by their face value. It represents the actual capital raised from shareholders. This calculation reflects the equity capital that investors have directly contributed to the company.
For instance, if a company issues 1 million shares with a face value of ₹10 each, the Issued Share Capital would be ₹10 million (1 million shares x ₹10 per share). This amount signifies the funds raised by the company from issuing these shares to investors.
The Issued Share Capital is a key component in a company’s balance sheet under the equity section. It indicates the monetary value that shareholders have invested in the company. This figure can change if the company decides to issue more shares or buy back some of its existing shares.
For example: If a company issues 2 million shares at a face value of ₹5 each, the Issued Share Capital is ₹10 million (2 million shares x ₹5). This represents the total capital raised from shareholders.
Difference Between Authorized And Issued Share Capital
The main difference between Authorized and Issued Share Capital is that Authorized Capital is the maximum amount a company can legally issue, while Issued Share Capital is the actual portion of this capital that has been issued and subscribed by shareholders.
| Aspect | Authorized Capital | Issued Share Capital |
| Definition | The maximum share capital a company is authorized to issue, as stated in its articles of incorporation. | The part of the authorized capital that is actually issued to and subscribed by shareholders. |
| Purpose | Sets an upper limit on how much capital a company can raise through share issuance. | Represents the actual capital raised by the company through share issuance. |
| Change | Can be altered via a formal process, often requiring shareholder approval. | Changes when new shares are issued or existing shares are bought back by the company. |
| Impact on Balance Sheet | Not directly reflected on the balance sheet as it’s a limit, not an actual figure. | Reflected in the equity section of the balance sheet, indicating funds raised from shareholders. |
| Example | A company might have an authorized capital of ₹100 crore. | Of the ₹100 crore, the company may issue ₹50 crore worth of shares to investors. |
Benefits Of Issued Capital
The main benefits of Issued Capital include providing essential funds for business growth and operations, creating a shareholder base, enhancing corporate credibility, offering liquidity options through public trading, and potentially increasing the company’s market value through public perception and investor interest.
- Funding for Growth
Issued Capital is crucial for raising funds needed for expansion, research and development, and other operational activities. This influx of capital allows companies to invest in new projects, enter new markets, and improve their overall competitive position.
- Shareholder Base Creation
By issuing shares, a company builds a base of shareholders, which can include both individual and institutional investors. This diversification of ownership can bring different perspectives and stability to the company’s shareholder structure.
- Corporate Credibility Enhancement
Having a substantial Issued Share Capital can enhance a company’s credibility and reputation in the market. It signals investor confidence and strong backing, making it easier to establish partnerships and attract further investment.
- Public Trading Liquidity
When shares are publicly traded, it provides liquidity to the shareholders. They have the flexibility to buy and sell shares, which not only benefits them but also increases the attractiveness of the company’s shares to potential investors.
- Market Value Increase
A successful issuance of shares can lead to an increase in market value. As more investors show interest and invest in the company, it often reflects positively on the company’s market valuation, potentially increasing its overall worth.
Issued Share Capital – Quick Summary
- Issued Share Capital represents the actual capital raised by a company through the sale of shares to investors, both public and private, indicating the amount of equity financing obtained and its shareholder structure.
- Issued Share Capital, calculated by multiplying issued shares by their face value, represents the actual capital raised from shareholders, reflecting the direct equity investment made by investors in the company.
- The main difference between Authorized and Issued Share Capital is that Authorized Capital sets the legal maximum for share issuance, while Issued Share Capital is the actual amount issued and held by shareholders, reflecting the realized equity investment in the company.
- The main benefits of Issued Capital are providing crucial funds for growth and operations, building a shareholder base, boosting corporate credibility, offering liquidity through public trading, and enhancing the company’s market value via public perception and investor interest.
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Issued Share Capital Meaning – FAQs
What Is Issued Share Capital?
Issued Share Capital is the part of a company’s authorized capital that has been offered to and subscribed by shareholders, representing the actual funds raised by the company through issuing its shares.
What Is An Example Of An Issue Of Shares?
An example of share issuance is when a startup company issues 100,000 shares at ₹10 each to investors. This raises ₹10 lakh (100,000 shares x ₹10) in capital for the company’s growth and development.
What Is The Difference Between Authorized And Issued Share Capital?
The main difference is that Authorized Share Capital is the maximum amount of shares a company can issue, while Issued Share Capital is the actual number of shares issued to and held by shareholders.
Who Will Issue The Shares?
Shares are issued by the company itself, typically through its board of directors who decide on the issuance details, such as the number of shares to be issued and the price per share.
How Are Shares Issued?
Shares are issued through a formal process where the company decides the number and type of shares, sets a price, and then offers them to investors either publicly via an IPO or privately.
Is Issued Share Capital A Current Asset?
No, Issued Share Capital is not a current asset. It is part of a company’s equity, representing the funds raised from shareholders. Current assets typically include cash, inventory, and receivables, which are more liquid.
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