A Guide to Paid-Up Capital in Singapore
What is Paid-Up Capital?
Paid-up capital refers to the amount that has been paid-up on shares that have been issued by a company. These shares may be ordinary shares, preference shares or some other class of shares.
How is paid-up capital different from share capital?
Issued share capital is the total amount of consideration (i.e. money and other assets) that shareholders have contributed to the company in exchange for their shares.
Unlike paid-up capital, these shares may or may have not been fully paid-up yet, though it is nowadays uncommon for shares to be issued without being fully paid-up.
Neither paid-up capital nor issued share capital are measures of the company’s current wealth or value.
How is paid-up capital different from authorised capital?
In 2006, Singapore abolished the concept of authorised capital to streamline and simplify the evaluation process for investors to evaluate companies.
Authorised capital refers to the maximum amount of share capital (inclusive of paid-up capital) that a company is authorised to allot. This amount would be fixed when the company was first incorporated, and indicated in the company’s constitution.
Must Paid-Up Capital be Paid in Cash?
Yes. Paid-up capital has to be deposited into the company’s corporate bank account, and hence has to be in cash.
Where shares are issued for non-cash consideration (e.g. in exchange for expertise and service), an equivalent dollar-value must still be paid into the company’s bank account.
What if the capital is not fully paid-up?
Capital that is not fully paid-up will remain as sums owed by the shareholder to the company. The company’s constitution may disallow a shareholder from voting until he fully pays for the shares.
The company may also, subject to its constitution, make provisions for the amount, manner and time by when the unpaid portion must be repaid.
What is Paid-Up Capital Used For?
Paid-up capital can be freely utilised for the company’s business purposes, subject to any restrictions in the company’s constitution. This is because money injected into the company can be utilised immediately, and there is no requirement for the funds to be kept in the corporate account for any specific period of time.
If the company becomes insolvent, the company’s paid-up capital (along with all the remaining assets of the company) will be used to repay creditors.
What happens if paid-up capital is used for non-business purposes?
Where paid-up capital is not used in accordance with the company’s constitution, or otherwise improperly used, the company may sue the wrongdoer.
Can I Check How Much Paid-Up Capital a Company Has?
Yes; the company’s business profile will state the amount of paid-up capital that the company has. You can access the business profile from the Accounting and Corporate Regulatory Authority (ACRA) through the BizFile+ portal.
Minimum Paid-Up Capital Requirements
Generally, the minimum paid-up capital for a Singapore Private Limited Company is S$1 or its equivalent in any currency. This requirement also applies to foreigners wishing to register a company in Singapore.
Higher minimum paid-up capital requirements for certain types of companies
Some types of companies which are in regulated industries may be subject to higher minimum paid-up capital requirements. Some examples include:
- Travel agencies – S$100,000, or S$50,000 if the agency only conducts tours within Singapore and does not arrange for accommodation
- Public accounting firm – S$50,000
- Insurance intermediary firms –S$300,000
Benefits of Having a Higher Paid-Up Capital
Despite the general minimum paid-up capital amount of just S$1, there are practical benefits to having a higher paid-up capital.
Ensures sufficient funds to engage in the company’s ordinary business
As funds are usually needed in a company’s usual operations, it is recommended that the amount of paid-up capital be sufficient to allow the company to conduct its ordinary business with adequate cash flow.
To illustrate, standard business functions may include paying suppliers, employees, and service providers.
A supplier may demand to be paid upfront but where a new business has not booked any revenue yet, it will need to have buffer funds to pay that supplier. To this end, payment could come out of the paid-up capital.
May allow for more favourable debt capital fundraising terms
An alternative to funding a business via equity capital (i.e. raising money by selling shares) is to raise funds via debt (loans, or issuing debt instruments like bonds).
A company that has a higher amount of paid-up capital may be able to obtain more favourable debt capital fundraising terms such as lower interest rates and avoid having its assets charged.
This is because creditors may feel more reassured of being able to recoup their investment from the company’s paid-up capital in the event of the company’s insolvency, as compared to a company with a paid-up capital of only S$1.
Singapore Business Federation membership with S$500,000 paid-up capital
All Singapore-registered companies with a paid-up capital of S$500,000 or more are automatically registered as members of the Singapore Business Federation (SBF), which is a business chamber that represents more than 30,000 companies and champions the interests of the Singapore business community. SBF members get access to various networking opportunities and other activities such as policy briefings and workshops.
What Happens If There is Insufficient Paid-Up Capital?
As mentioned above, the paid-up capital alone is not indicative of the net worth of the company.
As a company carries on business over time, any net gains (above the original paid-up capital) are booked in the company books as retained earnings. These can also be used to satisfy ongoing business expenses and liabilities.
However, if there is on the whole, insufficient money to satisfy liabilities (e.g. if the business is not doing well, or a company wishes to expand more aggressively), the company may need to raise money by issuing new shares, taking up bank loans or issuing debt instruments.
Increasing and Reducing A Company’s Paid-Up Capital
Increasing paid-up capital
To increase paid-up capital, the company will first need to issue new shares.
There are numerous legal requirements to be mindful of when it comes to share issues. These includes requirements pertaining to the giving of notice, shareholder approvals and directors’ duties. Breach of some of these rules may expose you to civil and even criminal liability.
For more information, please see our article on how to issue shares in a company.
Reducing paid-up capital
Reducing a company’s paid-up capital (and returning such capital to the shareholders) is more difficult than increasing its paid-up capital. This is so because of the concern that creditors may be disadvantaged if shareholders could freely recover their investments.
Amongst other risks, creditors run the risk of having their loans used for improper purposes.
For example, if the loan amount is used to pay dividends to shareholders, instead of for agreed purposes like growing the business. This in turn creates the risk that the company may not have enough money to pay their debts as they fall due.
Some of the rules pertaining to capital reduction are also highly technical in nature, and may at times require the court’s sanction.
For instance, share buybacks (whereby a company buys back its own shares from existing shareholders, and makes payment with its capital, hence reducing the company’s capital) are generally disallowed unless they fall within a few narrowly-defined exceptions in the CA.
For more information, please refer to our article on how to reduce the share capital of a company.
What Happens to Paid-Up Capital if a Company Closes Down?
If a company closes down, a liquidator will be appointed to wind up the affairs of the company. In the process, the liquidator will realise all of the company’s assets (including the paid-up capital) for distribution amongst creditors and, if there are funds remaining, to the shareholders, as mentioned above.
The initial amount of a company’s paid-up capital is determined when the company is first incorporated.
If you need assistance with setting up a company with your preferred amount of paid-up capital, you may wish to engage the services of a corporate secretarial firm.
The process of increasing or decreasing share capital, as mentioned above, is also subject to various legal requirements, and some processes may be highly technical in nature.
A corporate secretarial firm will also be able to assist you with these administrative procedures while ensuring compliance with the relevant laws and requirements.
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