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Paid-up capital is a term that is used in reference to the bid by various businesses and companies to raise some form of finance for their daily operations or for specific projects aimed at building up the business. During this quest for finance the company might rely on some form of equity financing, which is basically a form of financing where the company sells some of its shares to outside interests as a means of raising money internally. This is where the concept of paid-up capital comes in, because the company that issues shares uses this as a means of raising some capital necessary for it to function effectively. It is the part of the capital that has been issued to these outside interests and have been paid for that is referred to as paid-up capital.
That is to say that any form of shares that have been bid on but have not been sold or issued are not included in the calculations of paid-up capital. Companies are usually allotted a stated number of shares to sell to any potential investor, and they will not have any more shares to issue and will be considered fully paid up after selling all of the available allotments. When this is the case and the company still needs more finance to carry out any outstanding or new projects, it will either look for financing from other sources or seek to have the proper regulatory authority in that location authorize the company to generate and sell a stated number of shares to raise the money.
The advantage of paid-up capital financial arrangement for businesses includes the fact that it is wholly an internally generated fund that does not put the company into debt. Rather, the money raised through this method belongs to the company because the investors who purchase shares in that company do not lend the money with the intention that the money will be repaid with interest. Such investors only purchase shares with the intention that they will earn dividends over time. Sometimes, even though companies have been authorized to sell a certain number of shares, they may decide to sell only the percentage that is needed to reach the required funds, while withholding the rest of the shares from potential investors. Not only does this give the company more leverage in terms of decision-making, but it also allows the management of the company to retain more power in relation to the affairs of the company.
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