Issued Capital: Simple Guide
Understanding Issued Capital in Company Accounts with Examples
What is Issued Capital?
Issued Capital is the portion of Authorized Capital that a company offers or issues to the public for subscription.
In simple terms, Issued Capital represents the shares that a company actually offers to potential shareholders.
💡 Simple Definition
Issued Capital = The part of Authorized Capital that the company has offered to investors
Understanding with an Example
📊 Example: XYZ Company
Situation: XYZ Company has an Authorized Capital of ₹10 crore.
The company doesn't need the entire authorized capital at once. Based on business requirements, the company can issue:
- ₹5 crore worth of shares, OR
- ₹7 crore worth of shares, OR
- Any amount up to ₹10 crore
Suppose the company issues ₹6 crore worth of shares:
Remaining (Not yet issued) = ₹4,00,00,000
Later, when the company needs more funds, it can issue additional shares from the remaining ₹4 crore.
Why Don't Companies Issue All Capital at Once?
A company doesn't need all the authorized capital immediately. Therefore:
- The company issues only the amount of capital it needs right now
- When more funds are required in the future, additional capital can be issued
- This approach provides flexibility in fund management
💼 Business Perspective
Companies issue capital based on their immediate financial requirements. This staged approach helps in:
- Better cash flow management
- Maintaining optimal ownership structure
- Issuing shares at better valuations in the future
How Do Companies Issue Capital?
For Private Companies:
- Private companies issue a notice or offer to selected individuals
- They do NOT need to issue a prospectus
- Shares are offered to a limited group of people
For Public Companies:
- Public companies first issue a prospectus (detailed document about the company and share offering)
- Then they invite the public through advertisements in newspapers or on websites
- Anyone from the public can apply for shares
Journal Entry for Issued Capital
✅ Important Point
No journal entry is passed for Issued Capital in the books of accounts.
Why? Because the company has not received any money yet. The company has only offered shares to people for purchase. Money will be received when people apply and pay for these shares.
Relationship: Issued Capital vs Authorized Capital
Since Issued Capital is a part of Authorized Capital, the following rules apply:
📌 Key Rules
- Issued Capital can be LESS than Authorized Capital ✅
- Issued Capital can be EQUAL to Authorized Capital ✅
- Issued Capital can NEVER be MORE than Authorized Capital ❌
| Scenario | Is it Possible? | Example |
|---|---|---|
| Issued Capital < Authorized Capital | ✅ Yes | Authorized: ₹10 Cr, Issued: ₹6 Cr |
| Issued Capital = Authorized Capital | ✅ Yes | Authorized: ₹10 Cr, Issued: ₹10 Cr |
| Issued Capital > Authorized Capital | ❌ No (Not Allowed) | Authorized: ₹10 Cr, Issued: ₹12 Cr (Illegal!) |
Types of Issued Capital
Issued Capital can be divided into four categories based on whom the shares are issued:
- Shares Issued to Public - Shares offered to general public investors
- Shares Issued for Non-Cash Consideration - Shares given in exchange for assets, services, or other non-monetary considerations (we'll learn this in detail later)
- Shares Issued to Promoters - Shares allocated to company founders/promoters
- Shares Issued to Directors - Shares allocated to company directors
📝 Note
We will understand the concept of "Shares Issued for Non-Cash Consideration" in detail in upcoming topics.
Quick Summary
📝 Key Points to Remember
- Issued Capital is the part of Authorized Capital that company offers to investors
- Companies issue capital based on immediate business needs
- Private companies issue to selected people; Public companies issue to general public
- No journal entry for Issued Capital (no money received yet)
- Issued Capital ≤ Authorized Capital (always)
- Four types: Public, Non-Cash Consideration, Promoters, Directors