Companies Act Section 2(15) Called-up Capital

Called-up Capital Explained

Called-up Capital Section 2(15)

Called-up capital refers to the portion of the nominal (authorized) capital that a company has called upon its shareholders to pay. It is the aggregate amount of money that the company has requested from its shareholders to fulfill their commitment to the company's share capital.

Key Features:

1. Portion of Nominal Capital: 

Called-up capital is a subset of the authorized capital (the total capital a company is authorized to issue as per its Memorandum of Association).

2. Demand for Payment: 

When a company issues shares, it does not always require shareholders to pay the full nominal value of the shares immediately. 

The company may call for a portion of this amount as needed. 

The called-up capital represents the amount that shareholders are obligated to pay in response to such a call.

3. Payment in Installments: 

The amount can be called up in one go or in installments. 

For example, a company might issue shares with a face value of ?10 each and initially call up ?5 per share, with the remaining ?5 to be called up at a later date.

Importance:

1. Funding Operations: 

Called-up capital provides the company with necessary funds to finance its operations, expansion, and other business activities. 

It represents a crucial source of capital for the company.

2. Shareholder Obligation: 

Shareholders are legally obliged to pay the called-up amount. 

Failure to do so can result in penalties or forfeiture of their shares.

3. Capital Structure: 

Called-up capital is a component of the company’s capital structure. 

It helps in determining the equity base of the company and impacts various financial metrics and ratios.

Accounting Treatment:

Balance Sheet: 

The called-up capital is recorded in the equity section of the company's balance sheet. 

It represents the amount due from shareholders out of the total share capital issued.

Paid-up Capital: 

Paid-up capital is the portion of called-up capital that has actually been paid by the shareholders. 

It is possible for the called-up capital to differ from the paid-up capital if not all shareholders have paid the amount due.

Example:

Suppose a company has an authorized capital of ?1,000,000 divided into 100,000 shares of ?10 each. If the company issues 50,000 shares and calls up ?5 per share, the called-up capital would be:

Called-up capital = Number of shares issued × Amount called up per share

Called-up capital = 50,000 shares × ?5/share = ?250,000

This ?250,000 represents the amount that shareholders are required to pay to the company out of the total potential share capital.