What it means
When a company issues shares, three related numbers appear. Authorised capital is the maximum the company is allowed to issue, issued or subscribed capital is what has actually been allotted to shareholders, and paid-up capital is the portion of that issued amount for which cash (or another agreed asset) has genuinely been received.
In many jurisdictions a company may call for the share price in instalments, which is exactly where the gap between issued and paid-up appears. Paid-up capital matters because it is real money in the business with no repayment date and no interest attached.
Lenders and suppliers read it as a measure of owner commitment, some regulated sectors set minimum paid-up capital requirements, and in several countries company registration itself requires a stated minimum to be paid before trading begins. On the balance sheet the paid-up amount is usually split in two.
The nominal or par value per share goes into the share capital line, and anything paid above that goes into a share premium account, which some jurisdictions call additional paid-in capital. The split matters legally because share premium is often subject to restrictions on how it can be distributed.
It is worth being clear about what paid-up capital does not tell you. It records what owners paid in historically, not what the shares are worth now and not what the business is worth; a company that raised $500,000 twenty years ago and has retained profits ever since will show that same $500,000 no matter how large it has become.
The common variant to know is partly paid shares, where shareholders pay an initial amount on allotment and the company retains the right to "call" the rest later. Amounts called but not yet received are shown as calls in arrears, and a persistent arrears balance is a warning sign about the commitment of the shareholder base.
In practice
Real-world examples.
Example
A fintech applying for a payments licence must show at least $2,000,000 of paid-up capital before the regulator will approve the application. The founders inject a further $750,000 in cash to lift the paid-up figure from $1,250,000 to the required threshold.
Example
A family holding company issues 100,000 shares to a new cousin shareholder at $10 each, but agrees payment in two instalments. After the first instalment of $6 per share, paid-up capital increases by 100,000 x $6 = $600,000, with $400,000 still to come.
Example
A manufacturing joint venture is capitalised with $5,000,000 paid up on day one so it can buy plant without borrowing. The bank cites that paid-up figure as the main reason it offers an equipment facility at a lower margin than the parent expected.
Formula
Calculation
Paid-Up Capital = Number of Shares Issued x Amount Actually Paid Per Share, and equivalently Called-Up Capital - Calls in Arrears
A private company issues 500,000 ordinary shares at an agreed price of $4.00 each, giving subscribed capital of 500,000 x $4.00 = $2,000,000. Shareholders paid $3.50 per share on allotment, with the remaining $0.50 callable later, so paid-up capital is 500,000 x $3.50 = $1,750,000 and the uncalled balance is 500,000 x $0.50 = $250,000.
The shares have a nominal value of $1.00 each, so the share capital line shows 500,000 x $1.00 = $500,000 and the share premium account holds the rest, $1,750,000 - $500,000 = $1,250,000. If the company later calls the outstanding $0.50 per share and every shareholder pays, paid-up capital rises to $2,000,000 and share premium increases to $1,500,000.Case study
Seen in the real world.
Sarnia Analytics is an invented data business used here as an illustrative example. Its two founders registered the company with 1,000,000 shares at $1.00 nominal but paid up only $0.10 per share, giving paid-up capital of $100,000 while the balance sheet also showed $640,000 of director loans funding the actual operations.
When Sarnia approached a bank for a $500,000 growth facility, the credit team looked at the structure and declined. The founders had lent money they could withdraw at any time rather than committing it as equity, so from the bank's point of view the business had very little permanent capital at risk.
The founders converted $500,000 of their director loans into fully paid shares, lifting paid-up capital to $600,000 and removing the same amount from liabilities. Nothing about the company's cash or trading changed, but the facility was approved six weeks later at a rate 1.5 percentage points lower than the original quote.
Watch out
Common mistakes.
- Confusing authorised capital with paid-up capital, and quoting a large authorised figure as though the money is in the business.
- Assuming paid-up capital reflects current company value, when it only records what shareholders historically paid in.
- Leaving founder funding as director loans rather than paid-up shares, which weakens how lenders and investors read the capital structure.
Questions
People also ask.
Can paid-up capital be reduced?
Yes, but usually only through a formal capital reduction or share buy-back process with legal steps designed to protect creditors.
Does paid-up capital have to be cash?
Not necessarily; shares can be paid up with assets or by converting a debt, provided the value is properly supported and the process follows company law.
What is the difference between paid-up capital and share premium?
Paid-up capital is the total actually received, while share premium is only the slice of that total paid above each share's nominal value.
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