Called-Up Capital: Meaning, Example and More

Called-up capital is the amount shareholders are required to pay on their shares in a company. It represents the portion of authorized capital that is demanded by the company for utilization. This capital is crucial for financing business activities, supporting growth, and maintaining financial health. 

Called-up capital is an essential concept in corporate finance, representing the portion of a company's share capital that it has requested shareholders to pay, but may not yet be fully paid. Unlike paid-up capital, which is the actual amount received, called-up capital denotes the outstanding amount due from shareholders. This mechanism allows companies to manage their cash flow effectively by calling for funds as needed, rather than collecting the entire share value upfront.

Table of Content

• What is Called-Up Capital?
• Example of Called-Up Capital
• Process of Calling-Up Capital
• Called-Up Capital vs Paid-Up Capital

What is Called-Up Capital?

Called-up capital is the portion of a company's share capital that it has asked shareholders to pay, but it might not be paid in full yet. When a company issues shares, it doesn't always require investors to pay the total value immediately. Instead, it can "call up" a part of the share's value as needed. This called-up capital is crucial for the company's financial planning, ensuring funds are available as and when required for business operations or expansion.

Example of Called-Up Capital

Imagine "FutureTech Inc.," a tech startup, issues 1 million shares at ₹100 each, totalling ₹100 million in share capital. Initially, the company asked investors to pay only ₹50 per share, totalling ₹50 million. This amount is the called-up capital. Later, as FutureTech needs more funds for expansion, it "calls up" the remaining ₹50 per share. Until then, the remaining ₹50 million stays as uncalled capital. The initial ₹50 million helps FutureTech begin its operations without overburdening investors.

Process of Calling-Up Capital

Share Issuance: Initially, a company decides to issue shares to raise capital. Each share has a nominal value, but the company may not require the full amount immediately. Instead, it asks shareholders to pay a part of this value, with the understanding that the rest will be called up later as needed.

Calling-up Notice: When the company needs more funds, it issues a 'call' to shareholders. This is a formal request for a part of the unpaid share capital. The call notice includes specific details like the amount per share that needs to be paid, the total sum due from each shareholder, and the deadline for payment.

Payment Terms: The notice clearly outlines the terms of payment. This includes the exact amount that shareholders are required to pay, the method of payment (like bank transfer, or cheque), and the date by which the payment should be made. These terms are crucial for ensuring a smooth transaction.

Shareholder Compliance: Shareholders are expected to comply with the call notice by paying the specified amount within the given deadline. Failure to do so can lead to penalties, including interest on the late payment or, in some cases, forfeiture of the shares.

Receipt and Allocation of Funds: As shareholders make payments, the company collects these funds. This additional capital is then allocated to various company needs, such as funding new projects, repaying debts, or general operational expenses.

Recording in Financial Statements: Financially, this process increases the company's paid-up capital. The called-up capital is recorded in the company's financial statements, reflecting an increase in the company’s equity. This enhances the company's financial position and may improve investor confidence.

Legal and Regulatory Compliance: The entire process is governed by company law and, in the case of public companies, by stock market regulations. Companies must ensure that their calls comply with these regulations, including the timing, amount, and method of calls, and the rights of shareholders in case of non-compliance.

Called-Up Capital vs Paid-Up Capital

Conclusion!

Called-up capital is the part of a company's share capital requested from shareholders but not yet paid. It allows flexible fundraising, aligning cash needs with shareholder payments. This capital is key in corporate finance, reflecting the company's real-time financial requirements and commitments.