What are Authorised Capital and Paid-up Capital?

Last Updated at: January 09, 2020
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What are Authorised Capital and Paid-up Capital?

Generally, companies issue their shares of stock or equity for fund expansion, paying back the debts, etc. Share capital is the funds that are raised by a company in exchange for the shares issued to the shareholders. The Registrar of Companies (RoC) requires private limited companies, one-person companies, and public limited companies to declare their capital structure at all times and even when there is a change. Hence, whatever may be the company size and the type of business, every company has to get its share capital classified under various categories in the financial statement. 

In the company’s Memorandum of Association (MOA), the company should mention the number of shares to be issued in the Capital Clause. It cannot issue more than the stated number without amending its MoA. After the 2015 amendment in the Companies Act, the requirement for paid-up capital has been removed but the authorised capital still exists.

What is an Authorised Capital?

The authorised capital is the maximum amount of capital the shareholders are authorised to invest in the company. The maximum permissible limit is mentioned in the Memorandum of Association (MoA) of the Company, in the Capital Clause. However, there may be cases where some portion of the authorised share capital may remain un-issued. The number of share capital which is issued to the investors is known as the issued share capital.

Authorised Capital may also be called as a registered capital or nominal capital of the company. It is not necessary for a company to issue all its authorised capital in the public subscription. It may issue according to the needs and demand of the company. The authorised capital mentioned in the MoA may be increased or decreased in the future by following the procedure laid down under the Companies Act, 2013, such as:

    • Article of Association (AoA) of the company should authorise for increase or decrease in authorised capital and if such provision is not there in the AoA, it should be amended as per Section 14 of the Companies Act.
    • For increased or decrease in the authorised capital, a notice of the same should be issued to the Directors, Members and Auditors of the company for calling a meeting with the Board of Directors and a general meeting with the shareholders to obtain their approval.
    • Within 30 days of passing the resolution, the Registrar of the Company should be informed along with the copy of the resolution, a notice of General Meeting and amended MOA in Form SH-7.

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What is the meaning of Paid-up Share Capital?

Paid-up share capital is the amount for which shares are issued to the shareholders and the payment is done by the shareholders. This amount is the actual fund that the company receives on the issue of shares. Generally, this amount is raised as Initial Public Offering and forms part of the company’s Finance. However, the paid-up capital of the company can never be more than its authorised capital.

Before the 2015 amendment in the Company Act, a private limited company was required to have a minimum paid-up capital of 1 lakh, and a public company was required to have a minimum paid-up capital of 5 lakh. However, after the amendment, such requirement was removed and it is at the company’s discretion to set their paid-up capital, it could even be as less as Rs 5,000.

To know more on Paid Up Capital report from the MCA website, click here.

What is the difference between Authorised and Paid-up Share Capital?

Paid-up capital forms a part of the Authorised Capital. The major differences between the Authorised and Paid-up Share Capital include:

 

S.No Authorised Share Capital Paid-up Share Capital
1. It is the maximum value of the shares that can be issued to shareholders The amount of money that is actually paid by the shareholders to the company for the financing of the company
2. It should be mentioned in the Capital Clause of MoA It should be mentioned in the Capital Clause of MoA
3. To increase the authorised capital, the amendment has to be made in MoA by following the procedure mentioned above Can be done by the issue of shares or by private placement
4.  All new companies must authorise a minimum amount of capital, which is Rs 1 lakh for Pvt Ltd Companies and Rs 5 lakh for Public Limited Companies.  Paid-up capital cannot be more than authorized capital; it can be lower or equal to it
5. This is no way means that a person owes such an amount to anyone A company can issue shares and also buy them back, subject to certain terms and conditions.
6. This capital is not liable for use to calculate the net worth of the company The amount that a firm receives as paid-up capital can be used for business expenses of the company. Unlike authorized capital, paid-up capital is liable to be considered for calculation of the company’s net worth. It is, however, imperative to add that both authorized and paid-up capital is mentioned in the balance sheet but only one is used for calculating the firm’s net worth


Additional Concepts

There are a couple of other concepts, though less important, you may want to understand, too: Issued capital and Called-up capital.

Issued capital: This is capital issued to shareholders by the company, whether or not they have been paid for.

Called-up capital: This refers to issued capital that has not been paid-up.

Let’s end this with an example:

A company has an authorised capital of Rs. 30,00,000, for which it issues 100,000 shares at Rs. 10 each. Of this, 1000 shares are yet to be paid-up. Therefore, in this case:

Authorised capital: Rs. 30,00,000

Issued capital: Rs. 10,00,000

Paid-up capital: Rs. 900,000

Called-up capital: Rs. 100,000

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What are Authorised Capital and Paid-up Capital?

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Generally, companies issue their shares of stock or equity for fund expansion, paying back the debts, etc. Share capital is the funds that are raised by a company in exchange for the shares issued to the shareholders. The Registrar of Companies (RoC) requires private limited companies, one-person companies, and public limited companies to declare their capital structure at all times and even when there is a change. Hence, whatever may be the company size and the type of business, every company has to get its share capital classified under various categories in the financial statement. 

In the company’s Memorandum of Association (MOA), the company should mention the number of shares to be issued in the Capital Clause. It cannot issue more than the stated number without amending its MoA. After the 2015 amendment in the Companies Act, the requirement for paid-up capital has been removed but the authorised capital still exists.

What is an Authorised Capital?

The authorised capital is the maximum amount of capital the shareholders are authorised to invest in the company. The maximum permissible limit is mentioned in the Memorandum of Association (MoA) of the Company, in the Capital Clause. However, there may be cases where some portion of the authorised share capital may remain un-issued. The number of share capital which is issued to the investors is known as the issued share capital.

Authorised Capital may also be called as a registered capital or nominal capital of the company. It is not necessary for a company to issue all its authorised capital in the public subscription. It may issue according to the needs and demand of the company. The authorised capital mentioned in the MoA may be increased or decreased in the future by following the procedure laid down under the Companies Act, 2013, such as:

    • Article of Association (AoA) of the company should authorise for increase or decrease in authorised capital and if such provision is not there in the AoA, it should be amended as per Section 14 of the Companies Act.
    • For increased or decrease in the authorised capital, a notice of the same should be issued to the Directors, Members and Auditors of the company for calling a meeting with the Board of Directors and a general meeting with the shareholders to obtain their approval.
    • Within 30 days of passing the resolution, the Registrar of the Company should be informed along with the copy of the resolution, a notice of General Meeting and amended MOA in Form SH-7.

Ask for Free Legal Advice

What is the meaning of Paid-up Share Capital?

Paid-up share capital is the amount for which shares are issued to the shareholders and the payment is done by the shareholders. This amount is the actual fund that the company receives on the issue of shares. Generally, this amount is raised as Initial Public Offering and forms part of the company’s Finance. However, the paid-up capital of the company can never be more than its authorised capital.

Before the 2015 amendment in the Company Act, a private limited company was required to have a minimum paid-up capital of 1 lakh, and a public company was required to have a minimum paid-up capital of 5 lakh. However, after the amendment, such requirement was removed and it is at the company’s discretion to set their paid-up capital, it could even be as less as Rs 5,000.

To know more on Paid Up Capital report from the MCA website, click here.

What is the difference between Authorised and Paid-up Share Capital?

Paid-up capital forms a part of the Authorised Capital. The major differences between the Authorised and Paid-up Share Capital include:

 

S.No Authorised Share Capital Paid-up Share Capital
1. It is the maximum value of the shares that can be issued to shareholders The amount of money that is actually paid by the shareholders to the company for the financing of the company
2. It should be mentioned in the Capital Clause of MoA It should be mentioned in the Capital Clause of MoA
3. To increase the authorised capital, the amendment has to be made in MoA by following the procedure mentioned above Can be done by the issue of shares or by private placement
4.  All new companies must authorise a minimum amount of capital, which is Rs 1 lakh for Pvt Ltd Companies and Rs 5 lakh for Public Limited Companies.  Paid-up capital cannot be more than authorized capital; it can be lower or equal to it
5. This is no way means that a person owes such an amount to anyone A company can issue shares and also buy them back, subject to certain terms and conditions.
6. This capital is not liable for use to calculate the net worth of the company The amount that a firm receives as paid-up capital can be used for business expenses of the company. Unlike authorized capital, paid-up capital is liable to be considered for calculation of the company’s net worth. It is, however, imperative to add that both authorized and paid-up capital is mentioned in the balance sheet but only one is used for calculating the firm’s net worth


Additional Concepts

There are a couple of other concepts, though less important, you may want to understand, too: Issued capital and Called-up capital.

Issued capital: This is capital issued to shareholders by the company, whether or not they have been paid for.

Called-up capital: This refers to issued capital that has not been paid-up.

Let’s end this with an example:

A company has an authorised capital of Rs. 30,00,000, for which it issues 100,000 shares at Rs. 10 each. Of this, 1000 shares are yet to be paid-up. Therefore, in this case:

Authorised capital: Rs. 30,00,000

Issued capital: Rs. 10,00,000

Paid-up capital: Rs. 900,000

Called-up capital: Rs. 100,000

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