What is Called Up Share Capital Not Paid?

In the world of corporate finance, the concept of share capital holds great significance. One term that frequently emerges is “unpaid called-up share capital.” This guide aims to provide a comprehensive understanding of unpaid called-up share capital, its representation on the balance sheet, whether it is considered an asset, and shed light on relevant examples. 

So, if you have been left confused by the world of corporate finance and company secretarial as a business owner and don’t have the foggiest ‘what is called up share capital not paid?’ here’s the simple answer: 

Called up share capital not paid, often referred to as unpaid share capital or uncalled share capital, represents the portion of a company’s total share capital that has been issued to shareholders but remains unpaid. It indicates the amount shareholders are yet to pay for the shares they hold.

What does called up share capital not paid mean?

So, the short answer is yes called up share capital not paid represents the portion of a company’s total share capital that has been issued to shareholders that remains unpaid. We have covered various scenarios below to help you understand what is called up share capital not paid.

What is Unpaid Called-Up Share Capital?

Unpaid called-up share capital refers to the portion of a company’s authorized share capital that shareholders have committed to pay but have not yet fulfilled. Essentially, it represents the outstanding amount that shareholders are legally obligated to contribute towards the issued shares of a company. 

Until this amount is fully paid, it remains unpaid called-up share capital.

While shareholders have ownership rights corresponding to the shares, they are obligated to fulfil their financial commitment by paying the outstanding balance on these shares. 

Until the full amount is paid, the called-up share capital not paid remains as a liability on the company’s balance sheet. The company may issue calls to shareholders, requesting them to pay the unpaid portion as and when required, or as specified in the terms of share issuance.

Can share capital be unpaid?

Unpaid share capital refers to the situation when none of the funds owed for the issuance of shares have been paid. This occurrence is prevalent in smaller companies, where the share capital often remains unpaid and sometimes outstanding indefinitely.

Why issue unpaid or partly paid shares?

Issuing unpaid or partly paid shares can serve various purposes for a company:

1. Attracting Investors: Offering unpaid or partly paid shares can entice potential investors to buy shares at a lower initial cost. This approach might attract individuals or entities who are willing to invest in the company but may not have the full funds available immediately.

2. Raising Capital: By issuing unpaid or partly paid shares, a company can raise capital quickly without requiring shareholders to fully pay for their shares upfront. This can be particularly helpful for start-ups or businesses looking to expand.

3. Flexibility for Shareholders: Unpaid or partly paid shares provide flexibility for shareholders who might not be able to invest the entire amount at once. They can pay the remaining amount as and when they have the financial means to do so.

4. Shareholder Commitment: For some companies, issuing unpaid or partly paid shares can serve to assess the commitment and seriousness of shareholders. It ensures that shareholders have some financial stake in the company and are more likely to be actively involved in its success.

5. Future Funding: In cases where a company needs additional capital in the future, it can call for the payment of the remaining balance on the unpaid shares, effectively raising more funds without the need for a new share issuance.

6. Regulatory Requirements: In certain jurisdictions, issuing fully paid shares might not be possible or may have specific legal restrictions. Issuing unpaid or partly paid shares allows companies to comply with local regulations.

It is important to note that while issuing unpaid or partly paid shares can have its benefits, it also comes with certain risks. Shareholders who have not paid the full amount upfront may be liable to pay the outstanding balance if the company faces financial difficulties or goes into liquidation. 

As with any financial decision, careful consideration and professional advice are essential to ensure the best outcome for both the company and its shareholders.

How do you calculate called up share capital not paid?

Called up share capital not paid, also known as unpaid share capital or uncalled share capital, refers to the portion of the total share capital of a company that has been issued to shareholders, but they have not fully paid for their shares yet. To calculate the called-up share capital not paid, you’ll need to know the total issued share capital and the amount that remains unpaid.

The formula to calculate called up share capital not paid is:

Called Up Share Capital Not Paid = Total Issued Share Capital – Amount Paid by Shareholders

Let’s break down the steps to calculate it:

Step 1: Determine the Total Issued Share Capital

This is the total value of the shares that have been issued by the company to its shareholders. It is usually mentioned in the company’s capital structure or share capital section of its financial statements.

Step 2: Determine the Amount Paid by Shareholders

Find the total amount that shareholders have already paid for their shares. This information can be obtained from the company’s financial records or share registry.

Step 3: Calculate the Called-Up Share Capital Not Paid

Subtract the amount paid by shareholders (Step 2) from the total issued share capital (Step 1):

Called Up Share Capital Not Paid = Total Issued Share Capital – Amount Paid by Shareholders

The result will be the amount of called up share capital that remains unpaid by shareholders. This represents the outstanding balance that shareholders still need to pay for their shares.

How is Unpaid Share Capital Shown on the Balance Sheet?

On the balance sheet, unpaid called-up share capital is typically disclosed within the equity section, specifically under the shareholders’ funds category. It is presented separately from the paid-up share capital to provide transparency regarding the shareholders’ outstanding financial commitment. The following is an example of how unpaid share capital may be displayed on the balance sheet:

Shareholders’ Equity

   Share Capital

      – Paid-up Share Capital

      – Unpaid Called-Up Share Capital

   Retained Earnings

   Other Reserves

Is Unpaid Share Capital an Asset?

Contrary to its name, unpaid called-up share capital is not considered an asset. Assets are tangible or intangible resources that hold economic value and are controlled by the company. Unpaid share capital, however, represents a financial obligation of the shareholders, making it a liability from the company’s perspective until the full amount is paid. Thus, it is recorded under the equity section as a liability, rather than being recognised as an asset.

Example of Called-Up Share Capital

Suppose ABC Limited has 100,000 authorised shares with a par value of £10 per share. If shareholders have been called upon to pay for only 50,000 shares, the called-up share capital would amount to £500,000 (50,000 shares x £10 par value). However, if shareholders have only paid for 30,000 shares, the unpaid called-up share capital would be £200,000 (£500,000 – £300,000). This example demonstrates the distinction between called-up and paid-up share capital.

FAQs on called up share capital not paid

Unpaid Called-Up Share Capital in Dormant Companies

In the context of dormant companies, where business activities have ceased, unpaid called-up share capital may still exist. Even though the company is not actively engaged in operations, the shareholders’ obligation to contribute the outstanding amount towards the called-up share capital remains. Thus, even in a dormant state, the company’s balance sheet would reflect the unpaid called-up share capital as a liability until it is settled.

Can Called-Up Share Capital Not Paid Be Zero?

In theory, called-up share capital not paid can be zero if all shareholders have fulfilled their financial obligations and paid the entire called-up amount. In this scenario, the company’s balance sheet would not include any unpaid called-up share capital. However, it is essential to note that this is an exceptional circumstance, as it requires all shareholders to have fully settled their commitments.

Understanding Called-Up Capital and Paid-Up Capital

Called-up capital refers to the total amount of share capital that shareholders have been requested to pay based on the authorised shares. It represents the financial obligation imposed on shareholders. Paid-up capital, on the other hand, indicates the portion of called-up share capital that shareholders have actually paid. It reflects the funds that have been injected into the company by the shareholders.

Unpaid Called-Up Share Capital on the Balance Sheet

When presenting unpaid called-up share capital on the balance sheet, it is crucial to disclose it separately from the paid-up share capital. This provides transparency and enables stakeholders to understand the total financial commitment of shareholders. The balance sheet entry for unpaid called-up share capital would typically appear under the equity section, specifying the amount of outstanding unpaid share capital.

Conclusion

Unpaid called-up share capital is a significant aspect of corporate finance, representing the outstanding amount of share capital that shareholders have committed to pay but have not yet fulfilled. It is disclosed separately on the balance sheet under the equity section as a liability. 

While unpaid called-up share capital is not considered an asset, it holds importance in understanding the financial obligations and commitments of shareholders. By distinguishing between called-up and paid-up share capital, stakeholders can assess a company’s financial health more accurately.