Frontier Cars (India) Private Limited was incorporated in 2010 and is headquartered in Jabalpur, Madhya Pradesh. The firm’s paid-up capital stands at INR 62.35 lac or Rs. 6,235,000, while its authorized share capital is Rs. 10,000,000 or INR 1.00 cr.
The private company is in the automotive industry, primarily the sale of vehicles – wholesale and retail. A prime example is the locally available and all-new Nissan Frontier in Hutchinson. Besides passenger vehicles, Frontier Cars sells trailers and semi-trailers (new and used).
Well, what’s the importance of the numbers above? How could they impact you as an investor or customer? Let’s first discuss the role of authorized and paid-up capital to paint a broader picture of their significance.
This is the maximum amount of common stock a company is allowed to issue, according to its articles of incorporation. This number is set when the company is incorporated, and only shareholders can vote to amend it.
The authorized capital represents the upper limit on the number of shares that can be outstanding at any given time. Once a company issues all of its authorized shares, it cannot issue any more without first amending its articles of incorporation. In some cases, the authorized capital is referred to as the “maximum number of shares.”
So, what’s the role or significance of authorized capital? Well, for starters, it gives a company the ability to raise additional funds by issuing new shares of stock. This allows a company to grow and expand without going through the time-consuming and expensive process of amending its articles of incorporation.
As an unlisted private firm limited by shares, Frontier Cars (India) Private Limited is not bound by the listing requirements of public companies. This gives the management flexibility concerning raising capital.
For example, if the firm wants to raise additional funds from investors, it could do so by issuing new shares. The paid-up capital (more on this in a bit) would increase as a result, while the authorized share capital would remain unchanged.
Conversely, if the firm intends to buy back shares from existing shareholders, the paid-up capital would decrease while the authorized share capital would remain constant. Some of the other benefits of authorized capital include:
- Providing a cushion for a company if it needs to issue new shares for any reason (such as to raise additional funds, to pay off debt, among others)
- Let shareholders feel comfort knowing the company can issue new shares if necessary.
- Signaling to potential investors that the company is financially sound and can grow.
Paid-up capital, or contributed capital or subscribed capital, is the number of money shareholders has invested in a company by buying shares. It also represents the cash or assets a firm has on hand to grow and expand its operations. You can find the number in a company’s balance sheet under the shareholders’ Equity section.
For example, if a company wants to buy new equipment or open a new factory, it must have the paid-up capital to do so. In contrast, authorized capital represents the maximum amount of money a company could raise by issuing new shares of stock (as aforementioned).
Similarly, paid-up capital represents the minimum amount of equity shareholders must hold to maintain control of the company. For example, if a company issues 1,000 shares of stock at Rs. 10 per share, the paid-up capital would be Rs. 10,000.
While paid-up capital represents the minimum equity required to control a company, it is not necessarily indicative of the true value of the company. For instance, a company with Rs. 100,000 in paid-up capital could be worth significantly more or less than a company with Rs.10 million in paid-up capital. Thus, paid-up capital is only one-factor investors consider when assessing a company’s value.
Upsides of Paid-up Capital
Basically, paid-up capital represents funds that are not borrowed. What’s the significance of this?
Well, companies often take out loans to finance their operations. If a company has a lot of debt, it can strain its balance sheet and make it more difficult to obtain additional financing in the future. Thus, when all else is equal, a company with less debt and more paid-up capital usually has a stronger financial position than a company with more debt and less paid-up capital. Some of the other benefits of paid-up capital include:
- Showing potential investors that the company is capable of attracting capital.
- Demonstrating to creditors that the company can raise money to pay off debts.
- Letting shareholders feel comfort knowing the company can raise additional funds if necessary.
- Showing the market that a firm is financially sound and has growth potential.
While paid-up capital is pivotal to a business, it’s worth noting that a company can still function and grow without it. For example, a company could take out a loan to finance its operations instead of using paid-up capital. However, this would likely come at a higher cost since the firm would have to pay interest on the loan.
Where to Draw the Line
So, how much authorized or paid-up capital should a company have? Well, the answer may hinge on various variables, such as:
- The firm’s size and growth potential.
- The industry in which a company operates.
- Amount of debt a firm has.
- How much cash flow the company generates?
Generally, businesses should have more authorized capital than paid-up capital since this gives them the flexibility to raise additional funds if needed. Frontier Cars exemplifies this, as its paid-up capital falls short of authorized capital.
However, too much-authorized capital could signal to investors that a company is having difficulty attracting new capital. Thus, a firm must strike a balance between authorized and paid-up capital.
Now that you have the inside scoop on Frontier Cars’ paid-up capital, you have a better understanding of whether it offers a viable investment opportunity. The financial metrics aside, you can make an informed choice regarding your next vehicle in light of expected dealership support and other factors. And by investing in a vehicle from a stable firm, you’ll have added peace of mind knowing that the firm is less likely to go under in the future.