Types of Capital
Authorized share capital is the total amount of money that the company is allowed to cash in from the shareholders in return for giving out its shares to them. It is that amount of money which the principals of the company have decided to put together in order to start business until the company brings enough revenues to support its operations.
In most offshore jurisdictions there is a minimum required authorized share capital, and the share capital selected usually affects the fixed government fees payable. In British Virgin Islands, there is more flexible alternative: BVI Business Companies may choose to state only the number of shares for issue, but they do not have to determine the monetary value of their capital. Thus, the company may issue its shares at a “market value”, or at a value that depends on the capitalization requirements of the company.
The normal authorized share capital is US$ 50,000 divided into shares with or without par value. The share capital may be expressed in any currency. The minimum issued capital may be one share of no par value or one share of par value. Actually, any share capital is permitted, but additional government fees apply for the use of No Par Value Shares ($50) and authorized capital over $50,000 or equivalent ($700).
In the BVI, a company with the same 50,000 shares may decide to issue its shares with value of one US cent, or one hundred Euros, or five thousand pounds sterling each, thus raising substantially different amounts of capital from its potential shareholders.
Structural flexibility as provided by the BVI Business Companies Act is very useful; modern business situations can have many variants. A company may not need a single dollar of capital, if it has a super-original business idea – or it may need to have high amount of capital for a cash-intensive project.
Subscribed capital is the amount of money that the prospective shareholders actually agree to invest in return for their shares. The subscribed capital can quite often be less than the authorized capital. This simply means that the company has actually issued (or sold) only a part of its shares to the shareholders, whereby the remaining shares are not issued yet.
Another type of capital is Paid-up capital. The subscribed capital is transformed into paid-up capital when the subscriber when the subscriber actually honors his part of the deal and pays for his shares to the company. In most cases that simply means that the shareholder has paid some cash into the company. Usually, only when the shares are paid-up, the shareholder receives the right to get profits from the company and to vote in the shareholder's meeting. Terms and procedures of paying-up the company capital and the rights of shareholders are usually set forth in the Articles of Association of a company.