Share Capital: Authorised, Issued, Subscribed, Paid-Up and Shares Bought Back

Share capital is four numbers answering four different questions. Authorised is the ceiling the constitution permits. Issued is what has been offered to investors. Subscribed is what investors agreed to take. Paid-up is what they have actually paid for, and paid-up is the figure the balance sheet carries. Anjani Stationers shows Rs 40,00,000, being 4,00,000 ordinary shares of Rs 10 fully paid.

Here is why one number was never going to be enough. A business asking the public for money passes through several stages, and at each stage a different amount is true. The business sets a maximum it is permitted to raise. The maximum is a legal fact written into its constitution, and it has nothing to do with what has happened. The business then offers some part of that maximum. Investors respond, and they may take all of the offer or less than all of it. Finally, money arrives, and it may arrive in one instalment or in several. Four stages, four amounts, and only the last of them is money the business is holding.

The two places this lands are already established. Equity as a total on the balance sheet is share capital plus everything the business has retained, and for Anjani Stationers Private Limited that total is Rs 1,42,00,000, being Rs 40,00,000 of share capital and Rs 1,02,00,000 of retained earnings. Earnings per share is profit after tax divided by the share count. For the same year that is Rs 30,00,000 over 4,00,000 shares, or Rs 7.50. Each of the four numbers answers a different question, only one of them reaches the face of the balance sheet, shares a business has bought back reduce equity rather than sitting as an asset, and a buyback can lift earnings per share while the business earns nothing more.

What do authorised, issued, subscribed and paid-up actually mean?

Authorised capitalThe maximum amount of share capital a company is permitted to have at any time, written into its own constitutional documents. Raising it requires the members to change those documents. is a ceiling, not a balance. The ceiling says the most this business may ever have in issue, and the members set it in the company's own constitutional documents. Nothing has to have happened for the number to exist. A business may be incorporated with a ceiling far above anything it intends to raise, precisely so that it does not have to go back and amend its documents every time it wants to bring in a new investor.

Issued capitalThe part of the authorised ceiling that has actually been offered to investors. Issued capital can never exceed the ceiling, and is frequently far below it. is the part of that ceiling the business has actually offered. Subscribed capitalThe part of the issued capital that investors agreed to take. Where an offer is fully taken up, subscribed equals issued. Where it is not, subscribed is the smaller figure. is the part investors agreed to take. If the offer is fully taken up, those two are the same number, and in most closely held businesses they always are. If it is not fully taken up, subscribed is smaller, and the difference reveals something a single figure would have hidden. Paid-up capitalThe amount investors have actually paid on the shares they took. Where the full value of each share has been called and received, paid-up equals subscribed. is what has actually been paid, and it is the only one of the four that represents money in the business.

The four numbers nest, so authorised is at least issued, issued is at least subscribed, subscribed is at least paid-up, and paid-up is the figure the balance sheet carries. A wedding hall booked for eight hundred guests has the same structure. Eight hundred, the capacity the building permits, is the ceiling. Five hundred invitations sent out are the offer. Four hundred and twenty households confirming are what has been taken. Three hundred and eighty arriving and eating are what has been paid for. Only the last number would help a caterer deciding how many people to feed. Everything above it is permission, intention and promise.

Anjani Stationers is the simple case, and it is worth seeing the simple case first. Its issued, subscribed and paid-up amounts are all Rs 40,00,000, being 4,00,000 ordinary shares of Rs 10 each, fully taken up and fully paid. Three of the four coincide. The ceiling sits above them and is read from the notes rather than from the balance sheet totals. Take it as Rs 1,00,00,000, a round ceiling above the paid-up amount, so the nesting can be drawn. In a closely held business the shares were taken by a handful of people who paid in full, so this coincidence is ordinary. The four diverge more often in larger businesses with public offers, staged calls and offers that were not fully taken up.

Why are there four numbers instead of one, and what is a partly paid share?

Paid-up exists as a separate idea because a share does not have to be paid for all at once. A business may issue a share of Rs 10 and call for only part of that value now, leaving the rest to be called later when it needs the money. The holder is on the hook for the whole Rs 10 from the moment the share is taken, but only the called part has arrived. The gap between the called part and the whole is exactly what separates subscribed from paid-up, and it is the whole reason the accounts keep two figures rather than one.

The same shape appears outside a company. A household books a flat and pays a booking amount, then instalments as the floors go up. The builder has an agreement for the full price from the day of booking, but the money in the builder's account on any given morning is only what has been called and paid. The agreement is the subscription. The receipts are the paid-up amount. Paid-up is the only one of the four numbers that describes money the business is actually holding, and everything above it describes permission, offer or promise.

Anjani Stationers has no partly paid shares, so the mechanism needs a hypothetical on the same share count. Suppose the business had called only Rs 6 of each Rs 10 share. All 4,00,000 shares of Rs 10 were still taken, so the subscribed amount would still be Rs 40,00,000. Paid-up would be 4,00,000 times Rs 6, or Rs 24,00,000. The remaining Rs 16,00,000 would stay callable from holders whenever the business asked for it. The balance sheet would carry Rs 24,00,000 as share capital. The business has neither received the uncalled Rs 16,00,000 nor yet asked for it, so that amount sits nowhere on the sheet. None of this is what Anjani Stationers reported. Its shares are fully called and fully paid, so its subscribed and paid-up amounts are the same Rs 40,00,000.

What is Treasury Stock, and why is it deducted from equity rather than held as an asset?

A buybackA purchase by a company of its own shares from the people holding them, paid for out of the company's own money. Also called a repurchase. is a business buying its own shares back from the people holding them, using its own money. Once it has done that, something has to happen to the shares. There are only two possibilities. Either the shares are cancelled and cease to exist, or the business keeps them and they sit there, held by the business itself, issued but not in anybody else's hands. Shares kept in that second way are treasury stockShares a company has bought back and continues to hold rather than cancelling. Also called treasury shares. Treasury shares carry no vote and receive no dividend for as long as the company holds them..

Where a business holds them, the accounts do something that surprises readers the first time they meet it. A claim on yourself is not a resource, and treating it as one would let a business grow its own balance sheet by buying its own shares. Treasury stock is therefore presented as a deduction from equity, not as an asset. Sit with that for a moment, because the reason matters more than the rule. An asset is something the business controls that will bring economic benefit in from outside. A share the business holds in itself brings nothing in from outside. Its worth rises and falls with the worth of the business holding it, so the moment the business does badly, the asset shrinks in exactly the way the business shrank. A share in yourself is a mirror, not a measurement.

A simpler test reaches the same place: what actually happened when the money went out. Cash left the business and went to the people who sold their shares back, and it is not coming back. The people who remain have a claim on a business that now holds less cash. So the accounts reduce equity, the figure for what those remaining people have, by exactly the amount that left. Anything else would report a business that spent Rs 3,50,000 and was somehow no poorer for it.

In India, are bought-back shares held or extinguished?

Extinguished, as a general matter. Indian company law is built around the idea that shares a company buys from its members are cancelled rather than parked, so the concept of a share sitting in the company's hands waiting to be reissued is not the ordinary Indian outcome. An Indian reader will therefore meet the term treasury stock mostly in foreign filings, and an ordinary set of Indian accounts carries no treasury stock line. A great deal of writing on this subject is drafted for a different jurisdiction and then read in India as though it described local practice.

ExtinguishmentCancelling shares so that they cease to exist, rather than keeping them. The share count falls permanently and the shares cannot be reissued from the same lot. and holding produce the same total equity and differ in presentation and in what can happen next. Work the same hypothetical both ways and the arithmetic makes the point better than any description. Ten thousand shares bought at Rs 35 costs Rs 3,50,000 either way, and total equity lands at Rs 1,38,50,000 either way. Under extinguishment, the Rs 10 nominal value of each cancelled share comes out of share capital, so share capital falls by Rs 1,00,000 to Rs 39,00,000, and the remaining Rs 2,50,000 paid above nominal comes out of reserves, leaving Rs 99,50,000. Under a holding presentation, share capital stays at Rs 40,00,000, reserves stay at Rs 1,02,00,000, and the whole Rs 3,50,000 sits as a single negative line beneath them.

The last two rows are where the two presentations genuinely part company, so read them against each other. Under cancellation the shares are gone and the count can only rise again through a fresh issue. Under a holding presentation the shares still exist and could in principle come back out later. A reader of a foreign filing therefore has to check both the shares in issue and the shares held by the company before working any per-share figure. Getting the wrong one of those two counts into the denominator produces a per-share figure that is wrong by exactly the size of the holding, and nothing on the face of the statements will flag it.

How Share Buybacks Affect Financial Statements: which lines move and which do not?

Three statements, and the buyback touches two of them. Take the hypothetical again, 10,000 shares at Rs 35, costing Rs 3,50,000, and walk it through in order. On the balance sheet, cash falls by Rs 3,50,000 from Rs 5,00,000 to Rs 1,50,000, and equity falls by the same Rs 3,50,000 from Rs 1,42,00,000 to Rs 1,38,50,000. Total assets fall from Rs 1,80,00,000 to Rs 1,76,50,000, liabilities are untouched at Rs 38,00,000, and the sheet still balances because both sides moved by the same amount. The Rs 3,50,000 is money returned to the people who put money in, so in the cash flow statement it appears as an outflow in the financing section, alongside dividends and loan repayments.

The third statement is where the surprise is. A transaction between a business and its holders acting as holders is not income and is not an expense. Nothing at all passes through profit, and no gain and no loss appears even when the shares are bought for far more or far less than their nominal value. This trips up careful readers. Anjani Stationers would be paying Rs 35 for shares with a nominal value of Rs 10, and the instinct is that Rs 25 of difference has to land somewhere in the profit and loss account. It does not. The difference lands inside equity, moving between one part of equity and another, and the profit for the year is Rs 30,00,000 before the buyback and Rs 30,00,000 after it.

The everyday version is a shop with four partners where one partner is paid out. The shop's cash box is lighter and the remaining three have a claim on a smaller shop. Nothing about that transaction says whether the shop had a good month. Trading is what the profit statement reports, and paying a partner out is not trading.

Could Anjani Stationers actually afford the buyback it is being shown?

The funding question comes first. A buyback of 40,000 shares at Rs 35 costs Rs 14,00,000. Anjani Stationers is holding Rs 5,00,000 of cash. The business cannot fund a Rs 14,00,000 buyback out of a Rs 5,00,000 cash balance. The shortfall of Rs 9,00,000 would have to be borrowed, and borrowing to buy back shares is a different transaction with different consequences, covered under debt financing. So the buyback worth working is the one the cash actually supports.

Ten thousand shares at Rs 35 costs Rs 3,50,000 and leaves Rs 1,50,000 of cash. Rs 1,50,000 is tight for a business with trade payables of Rs 22,00,000, and a controller would think hard before doing it. But it is arithmetically possible without borrowing a rupee, and that makes it the buyback to work. Vaidehi Rao, the finance controller, would also point out that the year-end cash figure is a single-date reading and that the business runs a seasonal facility through the school-supply months, so cash on any other day of the year looks different. A cash figure read on one date is still the cash the buyback has to come out of, so the constraint belongs in the arithmetic rather than assumed away.

The absolute ceiling from cash alone is Rs 5,00,000 divided by Rs 35, or 14,285 shares, and it leaves Rs 25 in the bank. Nobody would do that. The figure only fixes the outer edge of what the cash could reach. Everything beyond that point needs borrowed money, and the simulation below marks the line.

Why can earnings per share rise when the business earned nothing more?

Because earnings per share is a fraction, and a buyback only touches the bottom of it. Nothing passed through the profit and loss account, so profit after tax is Rs 30,00,000 before the buyback and Rs 30,00,000 after it. The share count falls from 4,00,000 to 3,90,000. So earnings per share moves from Rs 30,00,000 over 4,00,000, or Rs 7.50, to Rs 30,00,000 over 3,90,000, or Rs 7.6923, shown as Rs 7.69.

The business did not earn one rupee more. The same earnings are simply divided among fewer holders, and the cash that left will never earn anything for anybody again. The second half is the part readers skip, so say it out loud. Rs 3,50,000 has gone out of the business permanently. Whatever that money would have done, bought stock, paid down the seasonal facility, sat in the bank earning something, it will not do now. The per-share figure went up and the business got smaller. Both are true at once, and only one of them shows up in the number people quote.

The household version is a shared taxi. Five people split a fare of Rs 500 and each pays Rs 100. One person gets out early and pays their share, and the remaining four split what is left. Each of the four now carries more of the fare per head. Nothing about the journey improved. The arithmetic simply has a smaller denominator. Earnings per share after a buyback works the same way with the sign flipped: the same profit, fewer heads, a larger figure each.

What else moves when equity falls, and how many findings is that?

Several things move at once, and a reader who counts them as separate discoveries has counted one event five times. Equity fell by Rs 3,50,000 and cash fell by Rs 3,50,000. Every ratio with equity or cash in it now reads differently, and not one of those readings is independent of the others.

Return on equity is Rs 30,00,000 over equity. Before the buyback that is Rs 30,00,000 over Rs 1,42,00,000, or 21.13 per cent. After it, the same Rs 30,00,000 over Rs 1,38,50,000, or 21.66 per cent. Gearing, measured as borrowings over borrowings plus equity, moves from 6.70 per cent to 6.86 per cent because the denominator shrank while borrowings of Rs 10,20,000 stayed exactly where they were. Net debt, borrowings less cash, moves from Rs 5,20,000 to Rs 8,70,000. Net debt moved for a different reason: the cash side fell, and nothing was borrowed.

Book value per shareTotal equity divided by the number of shares in the hands of holders. Book value per share says what each share represents in accounting terms, not what it would fetch. is the interesting one, because it does something the other three do not. Book value per share moves from Rs 1,42,00,000 over 4,00,000, or Rs 35.50, to Rs 1,38,50,000 over 3,90,000, or Rs 35.5128, shown as Rs 35.51. The figure barely moved, and the reason is worth holding on to. Buying shares below their book value nudges book value per share up, buying above it pulls book value per share down, and here the Rs 35 price sits so close to the Rs 35.50 book value that the whole effect is one paisa. If the price had been Rs 50 a share, book value per share would have fallen. Anybody who repeats the general claim that a buyback raises book value per share has not looked at the price.

Three of the five readings got better looking and one got worse looking and the fifth barely moved, all from a single payment. Five readings that all trace back to one cause are one finding wearing five hats, and treating them as five confirmations of the same conclusion is how a weak argument gets built out of arithmetic. The discipline is simple. When several ratios move together, the one thing that moved underneath them has to be found, and then tested against what was actually meant to be measured.

Four positions on the slider carry the whole lesson. At the default of no buyback, the position is the published one: 4,00,000 shares, equity of Rs 1,42,00,000, earnings per share of Rs 7.50, book value per share of Rs 35.50 and return on equity of 21.13 per cent. Move to 10,000 shares and the cost is Rs 3,50,000, cash falls to Rs 1,50,000, equity falls to Rs 1,38,50,000, earnings per share becomes Rs 7.69 and return on equity becomes 21.66 per cent. Move to 14,000 shares, close to the outer edge of what the cash supports, and the cost is Rs 4,90,000, cash falls to Rs 10,000, the count falls to 3,86,000 and earnings per share becomes Rs 7.77. Push past 14,285 shares and the cash has run out, so the panel turns the funding bar red and the rest would have to be borrowed. At the far end, 20,000 shares costs Rs 7,00,000, needs Rs 2,00,000 of borrowing on top of the whole cash balance, and lifts earnings per share to Rs 7.89. Profit after tax reads Rs 30,00,000 at every one of those positions.

How does a lender or an analyst actually use these four numbers?

A lender reads share capital for a reason that has nothing to do with per-share figures, so start with the lender. The money the holders have put in and left in stands ahead of the lender in the queue when things go wrong, so the lender wants to know how much of it there is. For Anjani Stationers that cushion is the whole of equity, Rs 1,42,00,000, of which Rs 40,00,000 is paid-up capital and Rs 1,02,00,000 is profit that was earned and not taken out. A lender also reads the authorised ceiling for a different reason entirely: it says how much more the business could raise from holders without going back to amend its constitutional documents. Headroom under the ceiling is a fast, cheap route to more equity. No headroom means an extra step and a members' meeting before any new money arrives.

The analyst's use is narrower and more procedural. A per-share figure whose denominator changed is not comparable with the one before it, so before reading any per-share figure across two periods an analyst checks whether the share count moved. The check is three lines long. Take the share count at the start, take it at the end, and if they differ, find out why, whether that was a fresh issue, a buyback, a bonus issue or shares coming out of an employee scheme. Then read total profit alongside the per-share figure for both periods. If total profit is flat and the per-share figure moved, the denominator did all the work.

There is a household version of the lender's question too. When a household goes to borrow for a house, the lender asks how much of its own money is going in before the loan does. The household's own contribution is the buffer that absorbs the first fall in the price of the house, and the lender's exposure only starts after it is gone. Paid-up capital plus retained earnings does exactly that job for a business, and the four share capital numbers exist so that a reader can tell how much of it actually arrived rather than how much was merely promised.

Anjani Stationers Private Limited, Chitra Binding Works Private Limited and Vaidehi Rao are invented.
Educational material. Not advice on any investment, tax, budget or market position.