But, fortunately, in most cases the question of nominal capital is one that is approached by business men in a business-like way. Whether it is the nominal capital of a large public company or that of a small private company, the question is the same, and its answer is found by the same process. For one thing the promoter does not wish to unnecessarily add to the amount of the registration duty, and accordingly from that point of view be desires to fix the amount of the nominal capital at as reasonable a figure as possible. Suppose the company to be formed for the purpose of purchas ing an existent business, the price to be paid therefor being £10,000, of which 25000 is to be paid in cash and 25000 in shares, and the company will also require to keep in hand a sum of 22000 to work upon. Many possible methods may be suggested as to the capitalisation of this company, but we will deal with two only.
Let the company be formed with a nominal capital of 28000, anu let it raise the £5000 to complete the purchase and the 22000 for its own use by the issue of 117000 in debentures. Here the 27000 necessary cash will be raised without reference to the capital, as such, of the company, though its repayment will be a charge on the asses; 5000 shares may then be issued and allotted to the vendor of the business, and the company will have on hand 3000 shares for future issue in case of need. The 5000 shares will be the capital issued, and the whole 8000 will constitute its nominal capital ; but if it should turn out to be impossible to get purchasers of the 3000 shares when needed, that part of the nominal capital will be practically worthless. If, however, the company, before desiring to issue the 3000 shares, had been paying very high dividends, and there was a prospect of its continuing so to do, that difference between the issued and the nominal capital might even be greater in value than its figures—s3000.
Another method would be to form the company with a nominal capital of, say, £15,000, divided into 15,000 shares of £1 each. Of this capital £5000 would be issued and allotted to the vendor, and 27000 issued again:_ subscriptions to that amount ; out of the 27000 so obtained, the £5000 balance of purchase money could be paid and the £2000 money needed kept in hand. The advantage of this method would lie in the absence of deben tures and the consequent higher value of the shares—including those un issued. Once the necessary issue of shares is provided for, any additional share capital kept in hand for later issue, if needful, must be an arbitrary amount; and since the nominal capital may always include the latter, it too must be an arbitrary amount, and would not itself, apart from special informa tion as to the finances of the company, afford any criterion of the company's stability or solidity.
Paid-up.---The discussion of the nominal capital has undoubtedly necessi tated such reference to the other forms of capital as to make further special comment thereon but a matter of detail. Paid-up capital consist:. of all the money which has been actually paid by shareholders in respect of the shares they hold. Though shares which have been properly issued as fully paid up, in accordance with a duly filed agreement, would be included in the paid-up capital, the latter term does not necessarily imply that all the shares issued are fully paid up.
Uncalled.—This part of the capital is represented by the balance of the amount of the shares not paid by their holders, and which would be payable to the company upon a call being made therefor. Uncalled capital may often be a valuable asset of the company, and it is accordingly very frequently made security by mortgage for a loan. A company has not, however, any general implied power to create such a mortgage. There must either be an express or implied power so to do in the memorandum, or there must be a like power to that effect in the articles, with nothing to the contrary in the memorandum.
JVorking capital has already been sufficiently referred to in connection with the nominal capital. There is not very much difficulty in deciding as to the amount thereof when the company is taking over an already existent business ; but in the case of a company formed to develop a new business or to exploit a new venture, the question of the working capital is an important and difficult one. In all such companies the investor should see that the working capital is adequate, and in some reasonable proportion to the pur chase money. This is especially important in companies intending to develop mining and like properties, for in such cases it is not at all unusual to find a company with £120,000 nominal capital, out of which £80,000 is paid in pur chase money, and only sufficient shares have been taken up to provide £2000 or £'3000 for working expenses. Such companies are soon found to be under going the process of liquidation. See PROSPECTUS.