What Is Authorized Capital And Paid-Up Capital?

What Is Authorized Capital And Paid-Up Capital?

Authorized Capital of a Company

The authorized capital of a corporation is the maximum sum of share capital for which shares could be issued by a corporation. The initial authorized capital of the corporation is stated in the Memorandum of Association of the Company under the heading of “Capital Clause and is generally Rs. 1 lakh. The authorized capital could be increased by the corporation at any time in the future with shareholders’ approval as well as by paying an additional fee towards the Registrar of Companies. Though, there might be circumstances where some portion of the authorized share capital might remain un-issued. The number of share capital which has been issued towards the investors is recognized as the issued share capital.

Authorized Capital might also be termed as a registered capital or nominal capital of the corporation. It is not obligatory for a corporation to issue all its authorized capital in the public subscription. It might issue as per the requirements and demands of the corporation. The authorized capital stated in the MoA might be increased or decreased in the future by means of following the procedure mentioned under the Companies Act, 2013, such as:

•    Article of Association (AoA) of the corporation must authorize for an increase or decrease in authorized capital and if such provision is not there in the AoA, it must be amended according to Section 14 of the Companies Act.

•    For increasing or decreasing in the authorized capital, a notice of the same must be issued to the Directors, Members as well as Auditors of the corporation for calling a meeting with the Board of Directors and a general meeting with the shareholders to get their approval.

•    Within 30 days of passing the resolution, the Registrar of the Company is required to be informed along with the copy of the resolution, a notice of General meeting as well as amended MOA in Form SH-7.

Paid-up Capital of a Company

Paid-up share capital of a corporation is the sum of money for which shares have been issued towards the shareholder for which payment was made by the shareholders. This sum is basically the actual fund that the corporation receives on the issue of shares. In general, this amount is raised as Initial Public Offering as well as forms part of the corporation’s Finance. Paid-up capital would always be less than authorized capital as a corporation cannot issue shares above its authorized capital.

The Companies Act, 2013 previously mandated that a Private Limited Company must have a minimum paid-up capital of Rs.1 lakh and a public company must have a minimum paid-up capital of 5 lakh. This intended that Rs.1 lakh worth of money must be invested in the corporation by the purchase of the corporation shares by the shareholders in order to start a business. Though, the Companies Amendment Act, 2015 removed such requirement and relaxed the minimum requirement for paid-up capital. Thus, there is now no requirement for any minimum capital towards being invested to start a private limited company. 

If there is a case of any change in the authorized and paid-up share capital, Registrar of Companies (ROC) must be updated with. The details shall be recorded in the Companies Master Data of MCA and would be available for the public to view the data.

The difference between Authorized and Paid-up Share Capital.

The differences between the Authorized and Paid-up Share Capital are:

Authorized Share Capital

Paid-up Share Capital

It is the maximum amount of the shares that could be issued towards shareholders

The sum of money that is in fact paid by the shareholders towards the corporation for the financing of the corporation

It must be stated in the Capital Clause of MoA

It must be stated in the Capital Clause of MoA

In order to increase the authorized capital, the amendment must be made in MoA by following the procedure as stated above

Can be done through the issue of shares or by private placement

All new corporations should authorize a minimum sum of capital, which is Rs 1 lakh for Private limited Companies and Rs 5 lakh for Public Limited Companies. 

Paid-up capital should not be more than authorized capital; it could be lower or equal to it

This is no way means that an individual owes such a sum to anyone

A corporation could issue shares and also buy them back, subject to some terms and conditions.

This capital is not responsible for the use to calculate the net worth of the corporation

The sum that a corporation receives as paid-up capital could be utilized for the business expenses of the corporation. Unlike authorized capital, paid-up capital is responsible to be considered for calculation of the corporation’s net worth. Also, both authorized as well as paid-up capital are stated in the balance sheet but only one is utilized for calculating the corporation’s net worth


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