Equity Structures Explained: What is Paid-Up Capital, Subscribed Shares, and Authorized Capital

October 8, 2025

In the Philippines, the corporate landscape hinges on a clear grasp of equity structures, with paid-up capital, subscribed shares, and authorized capital forming the core of a company’s financial foundation. These elements, governed by the Revised Corporation Code, define how businesses organize their capital to support operations, ensure compliance, and plan for growth. Paid-up capital represents the actual funds that shareholders have contributed to the company. Subscribed shares represent commitments to purchase shares, while authorized capital establishes the maximum limit for share issuances. For entrepreneurs and investors in the Philippine market, mastering these concepts is critical to building resilient businesses, meeting regulatory requirements, and fostering confidence among stakeholders in a dynamic economic environment.

What is Paid-Up Capital?

Paid-up capital refers to the portion of a company’s issued share capital that shareholders have fully paid for, thereby providing immediate funds for business operations. It reflects the tangible financial commitment from owners, distinguishing it from promises or authorizations. In the Philippines, the Securities and Exchange Commission (SEC) mandates that at least 25% of subscribed capital be paid up at incorporation, ensuring a minimum level of liquidity.

Definition and Role: The definition of paid-up share capital centers on the funds or assets received from shareholders, which are recorded under equity in the balance sheet. It fuels activities like purchasing equipment or hiring staff, acting as a financial buffer against liabilities.
Regulatory Context: Historically, domestic corporations were required to have a minimum paid-up capital of PHP 5,000; however, the Revised Corporation Code has relaxed this requirement for certain entities, offering flexibility for startups. Foreign-owned firms, however, often need USD 200,000 unless exemptions apply, such as for export-oriented businesses.
Examples: A retail startup might have PHP 200,000 in paid-up capital from cash contributions to open its first store. Alternatively, a property developer could contribute land valued at PHP 5 million, bolstering its financial base.
Accounting Treatment: Recorded as “Share Capital” at par value plus “Additional Paid-in Capital” for premiums, paid-up capital requires verified payments via bank deposits or asset appraisals to comply with SEC and Bureau of Internal Revenue (BIR) standards.
Importance: The importance of paid-up capital lies in its role as a signal of credibility to creditors and investors, thereby ensuring operational viability and stability. It also impacts dividend policies and loan approvals.
Calculation: Determined by multiplying issued shares by par value, plus any premiums. For example, 10,000 shares at PHP 2 par, fully paid, yield PHP 20,000 in paid-up capital, with additional paid-in capital if sold above par.

The paid-up capital in the balance sheet strengthens equity, enhancing financial stability. Mismanagement, such as inflating contributions, risks SEC penalties, underscoring the need for accurate documentation.

What Are Subscribed Shares?

Subscribed shares represent the portion of authorized capital that investors have committed to purchase, often through subscription agreements, but not necessarily fully paid. In the Philippines, corporations must subscribe to at least 25% of their authorized capital at formation, with a portion paid up, striking a balance between commitment and flexibility.

Subscribed Share Capital Meaning: This refers to an investor’s obligation to acquire shares, potentially over time through installments. Unlike paid-up capital, it encompasses both paid and unpaid amounts, which appear as receivables if not entirely settled.
Legal Requirements: The Revised Corporation Code mandates subscription agreements to formalize commitments, with the SEC monitoring compliance to prevent undercapitalization. Defaults on payments can lead to share forfeiture.
Practical Application: Businesses use subscriptions to secure future funding. A tech firm might subscribe to PHP 1 million in shares, paying PHP 250,000 upfront, with the rest due as milestones are achieved.
Difference Between Paid-Up and Subscribed Shares: Subscribed shares include unpaid portions, whereas paid-up capital refers to the funds received. For instance, if 50,000 shares are subscribed at PHP 1 but only PHP 30,000 is paid, the paid-up capital is PHP 30,000, with PHP 20,000 as receivables.
Examples: A manufacturing company might have PHP 10 million subscribed, with PHP 7 million paid up, allowing phased investments. A service firm could demand full payment on subscription for immediate liquidity.
Impact on Financials: Unpaid subscriptions affect cash flow and leverage ratios, requiring robust collection strategies to convert to paid-up capital, enhancing financial health.

Subscribed shares offer a strategic tool for aligning investor commitments with business needs, but diligent oversight ensures compliance and liquidity in the Philippine corporate framework.

What is Authorized Capital?

Authorized capital is the maximum amount of share capital a company is permitted to issue, as outlined in its articles of incorporation. It serves as a ceiling for potential equity financing, providing room for future growth without immediate regulatory amendments. In the Philippines, it shapes the company’s ability to scale and attract investment.

Authorized Share Capital Explained: This figure, established at the time of incorporation, defines the total value of shares a company is authorized to issue. For example, a corporation with PHP 50 million authorized capital can issue shares up to that limit over time.
Regulatory Framework: The SEC requires authorized capital to be declared upfront, with registration fees calculated as a percentage of the authorized capital. Amendments to increase it require shareholder approval and an SEC filing, which involves a two-thirds vote.
Paid-Up Capital vs. Authorized Capital: Authorized capital represents the potential, while paid-up capital is the actual amount. A firm with PHP 20 million in authorized capital might have only PHP 5 million in subscribed capital and PHP 2.5 million in paid-up capital, preserving flexibility.
Strategic Use: High authorized capital signals growth ambitions, attracting investors in capital-intensive sectors like real estate or telecom. It allows issuances without frequent regulatory changes.
Examples: A logistics company might set a PHP 100 million authorized capital, subscribing to PHP 25 million and paying PHP 6.25 million to start operations, reserving the rest for future expansion. A small consultancy could opt for PHP 1 million, aligning with modest needs.
Implications: Excessive authorized capital with low paid-up capital may suggest undercapitalization, which can affect creditworthiness. Conversely, balanced structures enhance investor trust.

Authorized capital provides a framework for scalability, enabling Philippine businesses to plan strategically while adhering to legal and financial standards.

How These Components Interact in the Capital Structure

The authorized subscribed capital structure, paid up, forms a cohesive system that governs a company’s equity framework in the Philippines. Each component plays a distinct role, interacting to balance immediate needs with long-term goals, ensuring compliance and financial stability.

Interplay Overview: Authorized capital sets the limit, subscribed shares represent commitments within that limit, and paid-up capital is the actual funds received. For example, a company with PHP 10 million in authorized capital, PHP 4 million in subscribed capital, and PHP 2 million in paid-up capital operates within a structured hierarchy.
Regulatory Alignment: The Revised Corporation Code requires 25% of the authorized capital to be subscribed and 25% of the subscribed capital to be paid up at formation, ensuring a baseline for operations. This tiered approach prevents overextension.
Financial Strategy: Businesses leverage this structure for phased funding. A retailer might increase paid-up capital within existing subscriptions to fund new stores, while maintaining a high authorized capital for future rounds.
Accounting Impact: Paid-up capital accounting treatment records paid-up under equity, subscriptions as receivables if unpaid, and authorized as a memorandum entry. Accurate reporting aligns with PFRS and BIR requirements.
Sector Variations: Industries like banking require high paid-up capital relative to authorized, while startups may prioritize flexibility with higher authorized limits. This adaptability suits the Philippines’ diverse economy.
Risk Management: Mismatches, like low paid-up relative to authorized, can signal instability. Regular audits and SEC filings ensure transparency in these interactions.

This interplay optimizes resource allocation, supporting growth while meeting regulatory demands in the Philippine market.

Challenges and Importance of Managing Equity Structures

Managing paid-up capital, subscribed shares, and authorized capital presents challenges that underscore their importance in the Philippines. Proper management ensures compliance, financial health, and investor confidence, while missteps can lead to penalties or operational setbacks.

Paid-up Capital Importance: It provides liquidity for operations and debt servicing, which is critical in sectors such as manufacturing. Inadequate levels risk insolvency or loan rejections.
Subscribed Shares Challenges: Unpaid subscriptions create collection risks, impacting cash flow. Robust agreements and follow-ups are essential for converting commitments into paid-up capital.
Authorized Capital Considerations: Setting it too high incurs higher SEC fees, while setting it too low limits growth. Amendments are costly and time-consuming, requiring strategic planning.
Regulatory Compliance: The SEC and BIR scrutinize these components for accuracy and completeness. Errors in paid-up capital restrictions, such as improper asset valuations, can result in fines or license revocation.
Sector-Specific Needs: The minimum paid-up capital requirement varies, with foreign firms needing USD 200,000 in some cases, and industries such as insurance demanding millions. Tailoring structures is vital.
Expert Assistance: The complexity of managing these components, from calculations to filings, necessitates professional guidance. It is essential to seek assistance from trusted providers like Triple i Consulting, whose expertise streamlines compliance and optimizes equity structures, thereby mitigating risks within the complex Philippine regulatory landscape.

Effective management aligns these elements with business goals, fostering resilience in a competitive economy.

Raising and Maintaining These Capital Components

Raising and maintaining paid-up capital, subscribed shares, and authorized capital requires strategic planning and adherence to Philippine regulations. Each component demands specific actions to support growth and compliance.

Raising Paid-Up Capital: Achieved by collecting payments on subscribed shares or issuing new ones within authorized limits. For example, a company might call PHP 1 million from existing subscriptions to fund expansion.
Increasing Subscribed Shares: Involves new subscription agreements, often requiring board approval. A startup could subscribe to additional shares to secure investor commitments for future projects.
Adjusting Authorized Capital: This requires amending the articles of incorporation through a shareholder vote and obtaining SEC approval. A firm might raise its PHP 5 million cap to PHP 20 million to attract foreign investors.
Maintenance Strategies: Regular audits ensure accurate reporting, while timely collections on subscriptions prevent liquidity issues. Fully paid-up shares reduce risks compared to partially paid ones.
Regulatory Steps: Raising paid-up capital involves SEC filings, treasurer’s affidavits, and BIR notifications. Amendments to authorized capital incur fees based on the increase in authorized capital.
Practical Examples: A hospitality firm might raise paid-up capital by PHP 3 million for renovations, subscribe to PHP 5 million for new branches, and increase authorized capital to PHP 50 million for long-term growth.

These processes, while intricate, enable businesses to scale effectively, ensuring compliance and financial robustness in the Philippines.

Final Thoughts

Paid-up capital, subscribed shares, and authorized capital form the bedrock of equity structures in the Philippines, each serving a distinct yet interconnected role. Paid-up capital provides immediate resources, subscribed shares secure future commitments, and authorized capital offers scalability, together ensuring compliance with the Revised Corporation Code and supporting business growth. Navigating these components requires precision, as they impact financial stability, investor trust, and regulatory compliance in a vibrant economy. By strategically managing these elements, Philippine businesses can position themselves for success, from startups to established enterprises. For tailored guidance, professional expertise is invaluable in this complex landscape.

Is Assistance Available?

Yes, Triple i Consulting can help navigate the complexities of paid-up capital, subscribed shares, and authorized capital in the Philippines. As a trusted provider, we offer expert solutions to streamline compliance and optimize your equity structure. Contact us today to schedule an initial consultation with one of our experts: