Defining shares and paid-up capital for your business

May 22

Defining shares and paid-up capital for your business

Before incorporating a company in Singapore, founders must first define the company’s paid-up capital. Any new business needs start-up capital to survive the first few months of operations. This will ensure that you can get through those very crucial first months. It could come from your savings, angel investment, venture capital etc.

From a corporate secretarial point of view, we have detailed below some key information regarding equity financing for the set-up and operations of a company.

Defining Shares

A share represents your part of ownership in a company. To own a share in a company, you as a shareholder are required to pay for it either in cash or in some kind of services that the Company needs. The fund received by the Company can then be utilized for payment of its operating expenses.

Issued vs Paid-up share capital

Issued share capital is the amount of money that you, as a shareholder have to pay in exchange for a number of shares of the Company whilst paid-up share capital is the actual amount of money that you paid for those shares.

If the issued share capital is equal to the paid-up share capital amount, shareholders of the Company have fully paid for the shares. If the Company needs more money, it can increase its share capital by issuing and allotting additional shares to the shareholders or to the new investors.

If the issued share capital is higher than the paid-up share capital, the shareholders of the Company have not fully paid for the shares and the Company can request the shareholders to make full payment for the shares they own as and when it needs this fund for its operation.

Minimum initial share capital

Legally, the company can be setup with a minimum paid-up capital of $1. However, a healthy paid-up capital means more liquidity for the business. There can be situations where the company will need to have a prescribed minimum paid-up capital. For example: (i) the business of the company is in an industry where licenses are required; (ii) where the shareholder requires to apply for an Entrepass.

Maximum paid-up share capital

The concept of authorized capital, which is the maximum amount of share capital, has since been abolished in Singapore. The Company can increase its share capital by issuing and allotting new shares to the existing shareholders and to new investors if additional capital is required for its operation and expansion.

Share allotment

When the shareholders have invested money into the company, how many shares should be issued to them? What value will a share have?

The value of each share may be decided by the company’s management. Let us look at a few scenarios to understand this better.

Number of shares = Amount of paid-up capital
Total paid-up capital: $5,000
Number of shareholders: 5
Value per share = $1

Here the number of shares to be given to each shareholder should be 1000 shares of $1 each, so that the number of shares equals the amount of paid-up capital (i.e. 5000 shares x $1 = $5,000).

Number of shares > Amount of paid-up capital
Total paid-up Capital: $5,000
Number of shareholders: 5
Value per share = $0.5.

Here the number of shares to be given to each shareholder should be 2,000 shares of $0.5 each and the number of shares is larger than the amount of paid-up capital (i.e 10,000 shares x $ 0.5 = $ 5,000).

Number of shares < Amount of paid-up capital
Total paid-up Capital: $5,000
Number of shareholders: 5
Value per share = $2

Here the number of shares to be given to each shareholder should be 500 shares of $2 each and the number of shares is smaller than the amount of paid-up capital (i.e. 2,500 shares x $2 = $5,000).

In the above scenarios, we assume that all the investors have the same percentage of shareholding in the company.

Conclusion

For startups, paid-up capital plays an important role. Other than being the initial source of funds, it’s a reflection of the financial strength and liquidity status of the company. A company would need sufficient paid-up capital if they plan to issue work visas for directors or employees or if the business requires a license in Singapore.

We have detailed our Singapore company incorporation and company administration services to assist entrepreneurs of startups and small businesses.

Need a hand with starting a company? Contact us.

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