What Is Paid-up Capital

When most company owners start a company, most often than not, never give much thought about their paid-up capital. Quite a number of company owners do not know what it is. It is the amount of money shareholders pay to a company, in exchange for shares in the company.

Thereafter, when a company sells its shares on the primary market to investors directly, the company is offering new shares in exchange for cash to operate its business. In the secondary market, investors can trade among themselves. Therefore any capital that belongs to the company, is for the company’s day-to-day operating and business expenses.

What is the minimum paid-up capital?

The minimum paid-up capital is $1 per shareholder in Singapore. Once the company is incorporated, it must be paid and deposited into the company’s bank account immediately once the bank account is opened. For illustration, if the company has 4 shareholders and they each own a 25% share of the company with $20,000 paid-up capital, each of them must pay $5,000 into the company’s bank account. As mentioned, this money is for running the company’s business.

In the event, if a company is winding up, the creditors can lay a claim to whatever unused capital. A high paid-up capital would signify that the company has strong backing. That is the reason why for certain government tenders, there is a minimum paid-up capital requirement, especially for construction-related tenders.  Imagine encountering a company that only has a capital of Singapore Dollars $1. I do not think any companies will deal with such a company as it doesn’t instil confidence.

Paid-up capital is crucial because it represents money that is not from any financial institutions. A company that has sold all its issued shares is understood to be fully paid up. To raise more capital, the only way is to borrow money from financial institutions or individuals or to get authorisation from its existing shareholders to sell more shares. In order to understand the balance of a company’s operations, investors, or the management of a company look at the paid-up capital.

If you have any questions about setting up a company in Singapore, do not hesitate to contact us today. 

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