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Prior to company incorporation in Singapore, deciding on your company’s share capital is vital. Its details, such as how it would be issued and its different types, must be presented in the company constitution. Singapore requires all companies to keep their share capital until their cessation.
We will help you understand what a share capital is, its different types, and how do these types resemble or differ from each other. Read on.
Share capital deals with the money that shareholders have invested in a company, in exchange for shares that have been issued to them by the company. It is the main source of funds of private limited companies. It is only generated by a company’s primary sale of shares to its investors. It does not involve shares sold in the secondary market.
The three types of share capital that will be discussed in this article are authorized capital, issued capital, and paid-up capital.
Every Singapore company was once required to specify the amount of capital that it wanted to register. The maximum amount of share that a company was authorized to issue to its shareholders back then was referred to as registered, nominal, or authorized capital. However this concept has been abolished long time back.
Issued capital represents the total amount of capital that a company has issued to its shareholders. Logically, the issued capital amount will always be less than the authorized capital amount.
Paid-up capital represents the total capital amount that shareholders have paid to the company. It will always be less than the issued capital.
Since the concept of authorized capital was already abolished in Singapore. Hence, corporate services providers (CSPs) do not track it. ACRA will not also provide this information in its own system.
Back then, a company’s authorized capital was fixed at a certain amount. Later on, this concept was found to be unnecessary because a company can always increase its capital up to unlimited amount by passing a resolution. Since companies can easily increase their capital through shareholders resolution and filing with ACRA, authorized capital was deemed unnecessary and bureaucratic. Taking this perspective, Singapore abolished the concept in 2006.
The abolition of authorized capital streamlined and simplified the evaluation procedures of companies. It also allowed companies to easily differentiate authorized capital from issued capital and perform business operations.
Shareholders are expected to deposit the capital, which was issued to them by the company, into the company bank account. Although there is no specific rule stating how the capital must be reflected, shareholders have to hand it over to the company in the form of funding. Funding can be settled through the company bank account, cash terms, or commitment terms.
During company incorporation, if the capital of a company is small (e.g., S$10,000), then most CSPs would lodge the amount as issued, along with the paid-up capital. It is presumed that since the shareholders have signed the agreement, they have considered to be paid with such amount. Perhaps, it is also presumed that the capital is already in their bank account and will be transferred to the company in due time. If the company’s capital is huge (e.g., $1,000,000), then most CSPs would require a proof of deposit of the fund into the company bank account before increasing the paid-up capital.
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