Authorized Capital vs Paid up Capital

Authorize Capital is the maximum amount for which a Company can issue shares to its Shareholders whereas, Paid-up Capital is the amount of money received by the shareholders for the shares held by them. In a company, Paid-up Share Capital can never be more than Authorize Capital.

What is Share Capital in a Company?

All the funds raised in a company through the issue of shares forms a part of the Share Capital.  A Company needs to decide its Share Capital well in advance (before its incorporation) considering all the expenses and investments.

The amount of Share Capital is mentioned in the Memorandum of Association of a Company under the Capital Clause. There are different types of share capital of a company like Authorise Capital, Paid-Up Capital, Called-up Capital, Subscribe Capital and Issued Capital. 

A Private Limited Company after its Incorporation decides the amount of Authorize Capital for the company and the value of shares they will receive during the allotment of shares to its shareholders.

Authorized Capital

It is the maximum amount of share that a company is authorized to issue to the shareholders. It is not necessary to issue the whole amount of the authorized capital, part of it can remain unissued.

The amount of share that is issued to the shareholder is called the issued share capital of the company. To put in other words, an authorized capital is the one which is the maximum amount of value of shares that a company can legally issue to the shareholders.

The Authorized capital needs to be specified in the Memorandum of Association(MOA) and can be divided into - 

  • Issued capital, which is the per value of the share that is actually issued.
  • Paid up capital, which is the money received from the shareholders in exchange of the shares.
  • Uncalled capital, which is the amount unpaid by the shareholders for the share that they have bought. 

Can Authorized Capital be Increased? 

You can also increase the Authorize Capital of your Company by seeking approval from all the members, directors and auditors. The amount to be increased is decided in the General Meeting and an ordinary resolution is passed for the same. 

The Company needs to file form SH-7 within 30 days of passing the resolution on the Ministry of Corporate Affairs (MCA) online portal.  

Paid Up Capital

It is the amount in a company which is funded by the shareholders i.e. the amount paid by the shareholders for the shares held by them. A Paid-up Capital can never be more than the Authorized Capital of the company.

This capital is a reflection of how an equity funding is needed for a company to grow in the market. A company can raise its finances with the help of the paid-up capital, which can either be in the form of Initial Public Offering(IPO) or an additional issue. 

According to the latest amendment (2015) in the Companies Act, 2013, the Government has removed the requirement of minimum paid-up capital which was earlier required for the incorporation of Private (Rs 1 Lakh) and Public Limited Company (Rs 5 Lakh). Now, the applicants can choose the amount of capital on their own. 

Difference Between Authorized Capital & Paid-up Capital

  • Authorise Share Capital is the amount for which a Company can issue shares to the shareholders whereas; a Paid-up Share Capital is the amount of money received from the shareholders for the shares allotted to them.
  • A Paid-up Share Capital should always be less than the Authorized Share Capital. 
  • The Authorize Share Capital can be increased anytime with the prior permission of the shareholders. 

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