Paid-Up Capital is essentially the monies which the company has received in exchange for its shares. This money must be deposited into the company’s bank account and can only be used for the running of the company. For example, if a company sells 100,000 ordinary shares for SGD$100,000 to a shareholder, this SGD$100,000 must be deposited into the company’s bank account by that shareholder. Once the shares are sold and the monies are paid up, the monies belong to the company, not to the shareholder. The company can use this money to pay for expenses like salary, rent or any other cost of running the business. The common question we receive is whether the paid-up capital needs to be maintained to the amount that is reflected in the business profile.
The answer to that is no.
The paid-up capital can be used for the business. If the paid-up capital is SGD$100,000, this amount of money can be used for business expenses. The main source of inflow of funds can include injection of capital through the sale of company shares and revenue from the sale of goods and services of the company. The main outflow of funds will be business expenses. A company may need a capital injection from time to time. This means that its expenses are more than their revenue and the company has run short of money in its accounts. We hear this rather often in very popular start-ups like Uber. These companies have had many rounds of funding from investors. These investors inject money into the company in exchange for more shares of the company.
Thus the paid-up capital is there for the company to use for its day to day running of the business. It would be important to note that the monies in the company’s bank account should not be used for the directors’ or shareholders’ personal expenses. The company is liable for whatever assets and monies that are left in the bank accounts.
When in doubt, seek legal advice or consult an experienced ACRA Filing Agent.
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