In this context, we shall consider ‘capital’ from two broad perspectives:

1. The General Perspective:
Scholars like Professor Abugu[1] believe capital is the net-worth of a business and it is determined by the value of its assets excluding its liabilities [Capital: (Net-worth of business= Value of Assets-Liabilities)]. Under the general perspective, capital could either be fixed or floating[2].

2. The Restrictive/Limited Perspective:
It is the view of some other scholars like Professor Gower that company capital is the value of assets contributed by the shareholders to the company. The shareholders may use cash or other instruments to pay for the shares. This perspective looks at the assets that are being exchanged for shares as capital.
Both perspectives have various advantages and disadvantages. Note however that both perspectives utilize the concepts of “asset” and “value”. However, emphasis is placed on value over asset…. “Value” is monetary. What it would take in terms of money to buy a particular asset of a company.
Note that there is a difference between value of asset and legal capital. For legal capital, we mean that sum which a company is required to have before starting its business (Section 27 CAMA) usually at the time of incorporation. The latter (value of asset) transcends the former.
The question is: why is the discussion on Capital so important? Why do you need money? The following reasons can be adduced:
a. It determines the safety and soundness of a company. The value of the company’s asset may be determinant of its health and fitness to embark on the journey for which it was incorporated. The capital triggers the whole essence for which the company was incorporated. Serves as an assurance to the shareholders that the vehicle (company) is worthy and can be trusted.
b. Public confidence and trust: once a company is incorporated and the business has commenced, then there is the attraction of the other members of the public. The net-worth of a company tells the public about its worth and trust. People go for companies that are doing well. E.g. when you go to the bank to deposit money, the motivation is because of the trust you have in the bank… that you can always go back and collect your money. If you hear that UBA is going bankrupt, you would most likely go and withdraw all your money before it becomes too late.
c. Protection of Creditors: e.g. when you approach a bank for loan, they would usually want to know your worth. The only reason why creditors would borrow out money to a company is because of the value of its assets. The word; “asset” has been abused in recent times.
d. It protects from financial distress: this occurs where a company is unable to honour its obligations. It is expected that companies should honour their obligations. Where they fail to do so, then it is assumed that they are facing distress. Immediately a company is in distress, the creditors come in to recover their money. The management would usually be transferred to the creditors. The cost of transferring such management from shareholders to creditors is usually expensive. When a company is in distress, the value of its assets starts dropping, employees start leaving.
e. Market efficiency: what is market? In a market, we have the buyers and sellers. These people are influenced by some forces usually economic like demand and supply. Efficiency on the other hand is receiving the most satisfaction from the available resources. When demand can be satisfied with asset. If the company goes into business and the capital is not there. The ability of the company to fulfil all its obligations within the market is one key that is attached to market capital.
There are various other reasons…

Categories of Company Capital
There is no universally acceptable definition/categorization. These are the common ones:
1.     Authorized Share Capital[3]
It is to companies limited by shares not those ltd by guarantee. The ASC is generally 10k. ASC is that which a company is required to have at the time of registration. The prescribed sum. Beside the requirement in Companies and Allied Matters Act, some other Statutes or laws would require other companies to have special authorized capital. E.g. the BOFIA, CBN Act, Insurance Act.
2.     Issued Capital
For issued capital, we are talking about that portion of the authorized share capital which is given to the shareholders. It is part of the authorized share capital taken out of the total authorized share capital. This part is either offered to the public for subscription or allotted to the shareholders of the company. Section 27 requires at least 25percent. Section 117 authorizes the company to issue shares. Which provides that it is at the discretion of the company… what the law requires is that it is at least 25 percent.
Under issued capital, we have three main types viz:
a. Capital issued at Par: which is just the face value… where the shares are offered/allotted at the face value. If a company is issuing out the shares and the price which it offers to the public is N1 per share, it means that the issued capital is at par… the capital issued at the face value. This is usually found on the certificate.
b. Capital issued at premium: a company may be doing very well after its incorporation. When it is incorporated with the face value of N1 per share. Companies and Allied Matters Act allows it under Section 120 to share it at the increased face value. Three things to note from Section 120: i. The Co has the power to issue shares above the face value ii. An account for the share premium should be created iii. The amount kept in the share premium account should not be tampered with.
In essence, the company need not issue share at the face value… it may be higher than the face value. Especially for companies that are doing well.
c. Capital issued at discount: this is the third type. Provided for in Section 121. Where a company is not doing very well then they price themselves low. It is usually done when the company is not doing well and people are interested in investing in the co. They issue the capital at a value lower than the face value of the shares of the co. The company must at a meeting pass a resolution as to the rate of the value… the resolution passed at the general meeting is then sanctioned by the court. This is because there are certain factors which the court may look at like the interest of the existing shareholders and propriety of offering at a lower value. After the court has sanctioned it, then the company can go to the market and issue the shares.
If the co has some money in its share premium account, the law allows it to use some of the money from the share premium account. If the account is zero, it should be reported in their financial report for the particular year.
3.     Subscribed capital:
This is part of the issued capital that is taken/subscribed to by the public. It is usually less. We are talking about the part of the issued capital which has been actually subscribed by the public. E.g. 3.5 is issued and the public subscribes to 2.5 million. If the issued is fully subscribed then we say that the amount that is issued and the amount that is subscribed are the same. There can also be instances where the public would over-subscribe to the issued capital. E.g. from the 3.5. million, a lot of people may subscribe to many because they do not know what the other person is subscribing to. The company may then still collect it notwithstanding that it is more than what was issued. What the company does is that they would go and alter their own books to reflect what has been subscribed to. From this subscribed capital, we have:
4.     The called-up capital:
This one is linked to the subscribed capital. This represents the part of the subscribed capital which has been called up…… which request for payment has been made. The company is making request for you to pay. Section 133 is instructive on this. It is the value of what you pay for the share that is called up.
5.     Uncalled capital: which is the amount which the shareholders have not paid upon yet though they have subscribed to it because the company has not requested them to pay yet.
6.     Paid up capital: the portion of called up capital that has actually been paid by the subscribers and received by the company. Another issue that arises here is what nature of currency should be paid. Where the called up capital is fully paid, then we have the CUC and the PUC being the same in the Co’s account. All is well. The opposite of PUC is unpaid capital. Then we have a situation where the CUC is lower than the PUC.
7.     Reserved capital: Section 134 Companies and Allied Matters Act. it is talking about the part of the uncalled capital which can be set aside and would not be called except in certain circumstances. It is set aside and a resolution is made that it shall not be called until something happens.
8.     Reserve fund: which is the part of the company profit which is set aside for other emergencies or to be ploughed back into the business of the co or other ventures. This is not the same as reserved capital. Section 383.
9.     Equity share capital: Section 567. This is just the difference between ordinary shares and preference shares.

[1] Department of Commercial and Industrial Law, Faculty of Law, University of Lagos.
[2] S. 567 CAMA
[3] See sections 27, 50, 52, 99 CAMA.


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