Paid-up capital for private limited company
If you are an aspiring entrepreneur planning to start your own company, it may be helpful for you to learn about stocks, their different types, and the rights that each stock type has.
What is paid-up capital in Singapore? As you know, shares are property rights in a firm. When creating a firm, its founders must determine the owners. Often, the founders also become the first stockholders of the firm. The first and most crucial step in starting a firm is choosing who will own the shares and how much; this is usually expressed as a percentage of the total number of shares, which is very important for every founder.
The paid authorized share capital Singapore is the amount that has been paid for the shares issued by the firm. These shares can be ordinary shares, preferred shares, or other classes of shares.
How does company paid-up capital differ from the authorized capital? In the context of the share capital of firms, you can come across various definitions such as authorized share capital, issued capital.
- Authorized capital is a concept that existed before but was canceled on January 30, 2006. It refers to the maximum share capital, including paid-in capital, that the firm has the right to issue and distribute. This amount was fixed during the registration of the firm and indicated in its charter.
- Issued capital is the total amount of compensation (i.e., money and other assets) that shareholders have contributed or are planning to contribute to the firm in exchange for their shares. These shares may or may not be fully paid up, although it is rare today to issue shares without full payment.
- Paid-up capital Singapore means that the sum of the value of the shares has been fully contributed by the shareholders to the firm, usually in the form of money. It is worth remembering that neither paid-up nor issued share capital indicates the current condition or value of the firm.
What is the paid-up capital used for?
Paid-up capital for Pty Ltd can be freely used for the commercial purposes of the firm, subject to any restrictions provided for by the firm’s charter. Typically, the money entered into the firm in the form of share capital is available to use immediately to carry out the firm’s business objectives as and when the need arises. There is no need to keep funds in the corporate account for any specific period of time.
If the firm becomes insolvent, the firm’s capital (together with all the firm’s remaining assets) will be used to repay the loan to the lenders.
What happens if capital is not fully paid up? The unpaid capital becomes a debt owed by the stockholder to the firm. Suppose it happened that the capital was not paid, and at the end of the reporting period, the firm had a debt. In that case, such debt flows from the firm’s obligations into the obligations of its stockholders. That is, stockholders will be directly liable for the firm’s obligations to its creditors personally.
Also, depending on the provisions of the firm’s charter, the firm’s charter may prohibit a shareholder from voting until they pay for the shares in full, cancel the unpaid shares, or cancel and resell them to other shareholders.
Depending on its charter, the firm may also provide for the size, procedure, and time frame during which the unpaid portion must be paid.
How to check the paid-up capital of the company? The firm’s extract from the register (business profile) indicates the amount of paid-up capital it has. You can get a business profile from the Accountancy and Corporate Regulation Authority (ACRA) through the BizFile + portal.
Minimum paid-up capital of Pty Ltd. Typically, the minimum paid-up capital for firm registration is 1 Singapore dollar; this also applies to foreigners wishing to register a firm.
High requirements for minimum paid-up capital Singapore. Some companies that operate in regulated industries may have higher minimum paid-up capital requirements for a private company. Here are some examples:
- Travel agencies of at least S $ 100,000 or S $ 50,000 if the agency conducts tours only within and does not organize accommodation.
- Licensed accounting firm at least S $ 50,000
- Companies that provide financial services (exchange or transfer of money) at least 100 or 200 thousand, respectively.
- Insurance intermediary firms at least US $ 300,000.
In reality, very few firms register companies with a minimum capital of $ 1. These can be small firms operating only with their funds, such as family holdings or small businesses among their partners, which do not require investment or special funds to run it.
Increase and decrease of the paid-up capital
Procedure for an increase in paid-up capital. To increase the paid-up capital, the firm will first need to issue new shares.
There are many legal requirements to keep in mind when it comes to issuing new shares and the procedure for increasing paid-up capital; this includes various procedures for issues such as notices, shareholder approval, and directors’ responsibilities. Violation of some of these rules may result in civil and even criminal liability.
Decrease in paid-in capital. Reducing the paid-up capital of a firm (and returning that capital to shareholders) is more difficult than increasing the paid-up capital; this is due to fears that lenders could be at a disadvantage if shareholders can return their investments without hindrance.
Among other things, lenders run the risk of misusing their loans.
For example, suppose the loan amount is used to pay dividends to shareholders rather than for agreed purposes such as business development. In that case, this could create a risk that the firm may not have enough money to pay off its debts when they fall due.
Some of the rules related to capital downgrades are also highly technical and may sometimes require court approval.
For example, share buybacks (in which a firm buys back its own shares from existing shareholders and pays with its capital, thereby reducing its capital) are generally prohibited unless they fall under a few narrowly defined exceptions.
What happens to the paid-in capital if the firm is closed? In general, paid-in capital will be returned to shareholders if it remains in a positive balance after the firm has fulfilled all obligations at the time of its closure. Suppose a firm is closed in a simplified manner (strike off). In that case, the refund occurs immediately after the termination of the firm’s activities since such a firm, by definition, has no debts and obligations.
If the firm closes with debts, then a liquidator will be appointed to close all the firm’s affairs. In this case, the liquidator realizes all the firm’s assets (including the paid-in capital) for distribution, first of all, among the creditors, and only then, if funds remain, they are paid to the shareholders, as mentioned above.