Table of Contents
In Short
- Called-up share capital refers to the amount shareholders are required to pay for their shares when requested by the company.
- This can be paid in instalments, and the company can call up the capital at any time, depending on the terms of the share agreement.
- Companies must manage called-up capital carefully to maintain financial stability and meet their obligations.
Tips for Businesses
Ensure your company’s share capital structure is clearly outlined in the shareholders’ agreement, specifying when and how capital can be called up. Communicate clearly with shareholders about any calls for capital to avoid misunderstandings. Regularly review your financial position to avoid unnecessary calls that could strain cash flow.
Called-up share capital refers to the shares the company has issued to its shareholders where there is a specific arrangement for the shareholders to pay for those shares. This concept often appears in Companies House filing documents. Called-up share capital is contrasted with uncalled share capital, which includes shares that do not have a specific payment agreement. The legal definition is intricate, but it essentially represents the portion of a company’s share capital with an explicit agreement on the value of those shares. This article will explore these concepts in more detail, highlighting their importance and implications in the corporate world.
Definition
It’s important to note that called-up share capital is not the same as paid-up share capital. Called-up share capital represents the amount that shareholders have agreed to pay, while paid-up share capital is the amount that has actually been paid to the company. This distinction is crucial for understanding a company’s financial position and potential liabilities.
To make sense of this concept, consider some examples of called-up share capital versus uncalled share capital.
Case Studies
| Example | Called-up or uncalled? | Further Considerations |
| YouCo Ltd agrees to issue you 1,000 shares for £1 per share. When it grants you the shares, you pay to its bank account £1,000 shares. | Called-up | Here, there is a definite agreement in place. You get 1,000 shares in exchange for £1,000 paid to the company. In this case, you pay for the shares at the point the company gives them to you. |
| YouCo Ltd agrees to allot you 1,000 shares. However, you negotiate to pay for £500 up front and another £500 next month. | Called-up | There is still a definite agreement in place. The difference in this case is that you do not pay for the full value of the shares. In this case, the law says these are called-up shares. |
| YouCo Ltd issues 1,000 shares to you but does not specify how much you will pay for them. You agree to revisit the price in a year’s time. | Uncalled | In this case, the company has issued you shares without calling their value. |
| YouCo Ltd issues you 1,000 shares. You agree to pay £500 now and a further unspecified amount at a later date. | Called-up | Again, no one can determine what the “call” is on the total number of shares issued. |
| YouCo Ltd issues you 1,000 shares at £1 per share, with a schedule of 25% upfront payment called-up and the remainder in three installments over the next year. | Called-up | This example illustrates a common scenario where share capital is paid in equal instalments, allowing for flexibility in capital management. |
Calculation
From an accounting perspective, the called-up share value is equal to:
- the share capital account (i.e. the aggregate nominal value of all shares in issue); plus
- the share premium account (i.e. any amount over the nominal value for which the shares have been issued).
This reflects the fact that while the company is free to issue shares under an arrangement for later payment, the company always reserves the right to demand payment upon notice. The amount payable must be equal to the value of the shares issued.
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An advantage of trading through a limited company is that the shareholders benefit from the principle of limited liability. This refers to the fact that each shareholder in a company is not personally liable for the company’s debts, aside from the value of their investment in the company (for which further amounts can only be requested if there is an unpaid amount on their shares, which is referred to as).
For any given company, the extent of each shareholder’s limited liability is equal to the value of the number of called-up shares they own. It does not matter if they have not paid for these shares. The reason is that if the company cannot satisfy its debt, its creditors should have recourse to those assets that the shareholders pledged to the company, even if they have not paid for their full value.
It follows that you cannot include on your company’s balance sheet any shares the company has issued for which there is no definite “call” on those shares. Otherwise, this would create a situation where, if your company later goes insolvent, no one can calculate if you have paid the company the value of the shares you owned.
This template helps you document important and major decisions or actions reached in board meetings.
Key Takeaways
Called-up share capital refers to a technical point of law and accounting. Only a company’s called-up share capital is part of its share capital for accounting purposes. Uncalled share capital represents shares issued without a definite agreement on payment terms. The distinction between this and uncalled share capital ensures clarity in financial statements, reflecting only those shares with enforceable payment commitments, thereby protecting creditors’ interests in cases of insolvency.
If you need help understanding called-up share capital, our experienced corporate lawyers can assist as part of our LegalVision membership. For a low monthly fee, you will have unlimited access to lawyers to answer your questions and draft and review your documents. Call us today on 0808 196 8584 or visit our membership page.
Frequently Asked Questions
This refers to the portion of the company’s share capital that exists as shares for which the company and the shareholder have a definite agreement as to the value of those shares. Uncalled share capital refers to all other shares that do not meet this definition.
Fully-paid shares are those called-up shares for which the shareholder has paid the full value of the price the company issued them to the shareholder.
Yes, a company can change its called-up share capital. This can be done through various methods such as issuing new shares, calling up unpaid amounts on partially paid shares, or reducing share capital (subject to legal requirements and shareholder approval). Any changes to called-up share capital must be reported to Companies House.
Called-up share capital is reported on a company’s balance sheet under shareholders’ equity. Accurate reporting of called-up share capital is crucial for providing a true and fair view of a company’s financial position.
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