Issued Share Capital

Issued share capital is the part of a company's share capital that has been allotted to shareholders. It is measured as the number of shares issued multiplied by their nominal, or par, value. A company with one million shares in issue, each with a nominal value of 10 pence, has an issued share capital of 100,000 pounds, whatever price investors paid for the shares and whatever they are worth in the market.

The term belongs to company law and accounting and is used chiefly in the United Kingdom, Ireland, the Commonwealth and continental Europe; US practice refers to issued shares and to the capital stock or common stock account. It is one of a family of capital terms. Authorised share capital is the maximum a company may issue under its constitution, issued capital is what it has in fact issued, and paid-up capital is the part of the issued capital for which shareholders have paid.

In the shareholders' equity section of the balance sheet, issued capital appears as called-up or issued share capital, at nominal value. Shares are almost always issued for more than their nominal value, and the excess is credited to a separate share premium account. If a company issues 1,000 shares with a nominal value of 1 pound each at a price of 5 pounds, share capital increases by 1,000 pounds and share premium by 4,000 pounds. Where shares have no par value, as is permitted or required in some jurisdictions, the whole of the proceeds is treated as capital.

The notes to the accounts disclose the number and classes of shares in issue, their nominal value, movements during the year and the rights attached to each class. The company's share register is the legal record of who holds the issued shares.

Issued capital rises when a company allots new shares. This happens in a flotation or placing, in a rights issue to existing holders, on the exercise of options and warrants, on conversion of convertible securities, as consideration for an acquisition, and in a bonus issue, where reserves are capitalised and new shares are given to holders free of payment. In many legal systems directors need shareholder authority to allot shares, and existing shareholders have pre-emption rights over new shares issued for cash, which protect them from dilution.

Issued capital falls when shares are cancelled, either after a share buyback or through a formal capital reduction. Shares that a company buys back and holds as treasury shares remain part of the issued capital but carry no votes or dividends while so held. A share split or a share consolidation changes the number of shares and their nominal value without changing the total.

The legal importance of issued capital lies in the doctrine of capital maintenance. Share capital is regarded as a fund on which creditors may rely, so it may not be returned to shareholders except through procedures laid down by law. Dividends may be paid only out of distributable profits, not out of capital. A reduction of capital requires a shareholder resolution together with court approval or a solvency statement by the directors, depending on the jurisdiction and type of company. Buybacks and redemptions must generally be funded from distributable profits or a fresh issue, with a transfer to a non-distributable reserve to preserve the capital. The related concept in other systems is legal capital.

Company law also sets minimums for public companies. In the European Union a public limited company must have a minimum subscribed capital of 25,000 euros. In the United Kingdom a public company must have allotted share capital with a nominal value of at least 50,000 pounds, of which at least a quarter, and the whole of any premium, must be paid up.

Several figures are easily confused with issued capital.

• Authorised capital. A ceiling, where the concept still exists. The United Kingdom abolished the requirement for companies to have an authorised share capital in 2009, though a company may keep a limit in its articles.
• Outstanding shares. Issued shares less those held in treasury, the figure used for votes and dividends; see outstanding shares.
• Market capitalisation. The number of shares multiplied by the market price, which bears no relation to nominal value; see market capitalization.
• Total equity. Issued capital plus share premium, retained earnings and other reserves.

The weighted average number of shares in issue during a period is the denominator in earnings per share.

For most trading companies the nominal amount of issued capital is small in relation to total equity and tells an investor little about the size of the business. Its importance is legal: it fixes voting and dividend entitlements between classes, sets thresholds for shareholder rights that are expressed as a percentage of issued capital, and determines whether a company meets statutory minimums. Listed companies announce the total number of shares and voting rights in issue regularly so that investors can calculate their own percentage holdings, and each new allotment is recorded through securities registration and filed with the companies registry.