Paid-up capital

When a company issues shares it need not collect the whole price at once. It may take part with the application and call for the rest later, in instalments.

Paid-up capital is what has actually come in. Issued capital is what was promised. Where every share is fully paid up, the two are identical and nobody thinks about the distinction — which is exactly why it catches people out when a question puts partly paid shares in front of them.

The distinction has teeth. A shareholder holding partly paid-up shares remains liable for the unpaid portion, and if they do not pay the call money on schedule the company can forfeit the shares — including the amount already paid on them.

For a registrar, partly paid shares are an operational special case rather than a footnote.

SEBI's present direction is that a company is not permitted more than one ISIN for its equity shares unless the amount called and paid is not the same, or the shares carry differential voting rights. In other words all shares under one ISIN must be pari passu in every respect — so the moment part of the capital is partly paid, it needs a separate ISIN, its own corporate-action treatment and its own entitlement arithmetic.

Paid-up capital is also the base for the buy-back limits in Chapter 7.7. A buy-back within 10 percent of the aggregate of paid-up equity capital and free reserves needs only a board resolution; above 10 percent it needs a special resolution at a general meeting; and it cannot exceed 25 percent of the total of paid-up capital and free reserves, taken on standalone or consolidated statements, whichever gives the lower amount. Every security bought back must be fully paid-up.

Paid-up capital = Issued capital − Calls unpaid (+ forfeited amounts, where applicable)

Maximum buy-back = 25% × (Paid-up capital + Free reserves)
Board-resolution route ≤ 10% × (Paid-up capital + Free reserves)

A company issues 1 crore shares of Rs 10 face value at par — issued capital Rs 10 crore — collecting Rs 5 on application and Rs 5 after six months.

One holder of 2,000 shares does not pay the second call. The arrears are 2,000 × Rs 5 = Rs 10,000. If the company forfeits the shares, that holder also loses the Rs 10,000 already paid on them — a total of Rs 10,000 gone and no shares to show for it.

Now the buy-back test. Say the same company, years later, has paid-up capital of Rs 40 crore and free reserves of Rs 360 crore.

Base                    = 40 + 360        = Rs 400 crore
Maximum buy-back (25%)  = 0.25 × 400      = Rs 100 crore
Board-only route (10%)  = 0.10 × 400      = Rs 40 crore

A Rs 95 crore buy-back is permitted — but only with a special resolution, because it is above the Rs 40 crore board-only line. A Rs 120 crore buy-back is not permitted at all.

Chapter 2.4 (Equity Terminology) for the definition, fully versus partly paid shares and forfeiture; Chapter 7.7 (Buy Back of Securities) for the 10 percent and 25 percent thresholds that are computed on paid-up capital plus free reserves; Chapter 12.5 for the one-ISIN rule that partly paid shares break. Numerical questions almost always turn on reading which instalments have actually been collected.

• Paid-up equals issued only when all shares are fully paid. A question that mentions instalments or call money is telling you they are not.
• Forfeiture takes the money already paid too. The shareholder does not get a refund of the application money.
• The buy-back cap is 25 percent of paid-up capital plus free reserves — not 25 percent of paid-up capital. Free reserves are usually the far larger half.
• Partly paid shares need their own ISIN. The one-ISIN rule is broken by unequal amounts called and paid, and by differential voting rights.
• The premium is not part of paid-up capital. A Rs 10 share issued at Rs 50 adds Rs 10 to paid-up capital and Rs 40 to share premium.
• Only fully paid-up securities can be bought back.