Subscribed Capital: Example and Process

Subscribed capital is the total value of shares investors have committed to buy from a company. It indicates investor interest and potential funds, crucial for a company's growth, yet to be paid in full.

Ever wondered how companies raise money by selling shares? Well, it all starts with share capital. Think of share capital as a big pie. The largest slice is the authorized capital - that's the maximum amount of shares a company is allowed to issue, kind of like its share-selling limit. From this, the company decides on the issued capital, which are the slices it offers to investors. Then, there's the subscribed capital - these are the slices people say they'll buy, but they haven't paid for them just yet.

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Table of Content

• What is Subscribed Capital?
• Example of Subscribed Capital
• Difference Between Subscribed Capital, Issued Capital and Paid-Up Capital
• Process of Subscribing
• Subscribed But Not-Paid Up Capital

What is Subscribed Capital?

Subscribed capital is that part of issued capital which is subscribed by the public. When the shares offered for public subscription are subscribed fully by the public the issued capital and subscribed capital would be the same. It is the amount of shares that investors have committed to buy and for which the company expects to receive payment.

Example of Subscribed Capital

A company decides to sell 100,000 shares to grow its business. Each share costs ₹200. People show interest and sign up to buy all the shares, but they haven't paid yet. So, the company has ₹20 million (100,000 shares x ₹200) in subscribed capital. This means the company can expect ₹20 million soon, once the investors pay for the shares they've subscribed to. This subscribed capital is like a promise of funds coming the company’s way.

Difference Between Subscribed Capital, Issued Capital and Paid-Up Capital

Process of Subscribing

Offer Announcement: A company looking to raise capital through share issuance publicly announces its intention. This announcement includes key details like the number of shares being offered and the price per share. It serves as an invitation to potential investors to buy shares in the company.

Prospectus Issuance: The prospectus is a detailed document that provides comprehensive information about the share offer. It includes the company’s financial statements, details about its operations, management team, and risks involved. This document helps investors make informed decisions about whether to invest in the company.

Application Submission: Investors interested in buying shares submit their applications. This typically involves filling out a form indicating the number of shares they wish to buy and agreeing to the terms of the offer. In some cases, a small deposit might be required with the application.

Allotment of Shares: After the application deadline, the company allocates shares to applicants. If the offer is oversubscribed (more shares applied for than available), the company may allocate shares on a pro-rata basis or through a lottery system. Sometimes, not all applicants receive the number of shares they applied for.

Payment by Investors: Once shares are allotted, investors are required to pay for them. Payment terms can vary - it might be required in full upon allotment or in instalments according to a schedule set by the company.

Confirmation of Subscription: The company acknowledges receipt of payment and confirms the investor’s subscription to the shares. This step formalizes the investor's status as a shareholder and entitles them to shareholder rights.

Share Registration: The investor's details are registered in the company’s shareholder registry. This registration is crucial as it legally recognizes the investor as a holder of the company’s shares, entitling them to dividends, voting rights, and other shareholder benefits.

Issuance of Share Certificates: Finally, the company issues share certificates to the investors. These certificates serve as physical proof of share ownership. They include details like the number of shares owned, the shareholder’s name, and the certificate number. In the digital age, this is often replaced with electronic records.

Subscribed But Not-Paid Up Capital

Subscribed but not paid-up capital refers to the portion of a company's equity that investors have committed to buying, but have not yet paid for in full. When a company issues shares, investors subscribe to these shares, indicating their intention to purchase. However, until they pay the full amount for these shares, the capital remains 'subscribed' but 'not paid up'. This situation often arises when a company calls for payment in instalments or defers payment requests, leaving a portion of the subscribed capital unpaid.