Difference Between Authorised Capital and Paid-up Capital Read Regulatory & Company Updates, Academic & Research Articles InstaFinancials Blog

This sum is also regarded as the real funds received by the firm as a result of being stated on the stock issue. This sum is usually raised as part of an Initial Public Offering and it becomes part of the company’s finances. However, the company’s paid-up capital will never equal its permitted capital. It represents the total capital issued by a company out of the total authorized capital. The issued share capital is offered to the shareholders for subscription. The company must however keep a record of issued share capital to counter any legal drawbacks in the case of any financial or legal issue with the issue of shares.

At any point, the paid-up capital of a company can never be more than its authorised capital but it can be equal to the authorised capital. On the other hand, a company is not authorised to issue shares beyond the authorised share capital. Further, a company requires to comply with legal regulations based on authorised capital and paid-up capital. Having an idea of such limits will be very helpful for company Directors to make decisions and comply with legal requirements.

The company can issue and sell more shares once the amount of authorized capital is raised. Conversely, a rise in paid-up capital indicates that the corporation has already sold more shares than are currently valued. Therefore, if a company wishes to increase its issued capital beyond the authorised share capital, it would need to go through a formal process of amending authorised capital. In short, they will have to increase authorised capital to increase the issued capital.

  • The business-friendly environment in India, with its relaxed capital infusion regulations, appears particularly attractive and accommodating to foreign companies.
  • No, the paid-up capital of a company cannot be more than its authorized capital.
  • Every company’s share capital may be classified in various ways within its financial statements, regardless of size, business type, or category.
  • Depending on the jurisdiction and the business in question, some companies may issue shares to investors with the understanding they will be paid at a later date.

Called-up share capital consists of shares that are not fully paid for upfront. The full payment for these shares will be done in the future at a later date or through installment payments. The „called-up” portion of share capital is the unpaid amount that the company will eventually call upon.

Instead, some will be held in reserve by the company for possible future use. When a company chooses to raise funds by issue of shares, it can do so up to the value of authorized share capital. If it requires raising funds in excess of this it must first increase its authorized share capital by obtaining shareholder approval.

Authorised & Paid Up Capital of a Company

It is the actual fund that the company receives from the issue of shares. It can either be in the form of an Initial Public Offering (IPO) or an additional issue of shares. Finally, suppose that shareholders pay for Rs. 4,00,000 worth of the issued shares.

Share capital consists of all funds raised by a company in exchange for shares of either common or preferred shares of stock. The amount of share capital or equity financing a company has can change over time. However, as per the amendment in the Companies Act, 2013, there is no minimum paid-up capital requirement to start a private limited company. Now foreign companies in India are relaxed from the requirement of minimum capital investment. In fact, they are free to incorporate with a nominal paid-up capital which can be as low as Rs. 1000 (€ 11 approx.). And, if there are any subsequent financial needs of the company, they can be met through various debt financing options.

A. Factors to Consider in Determining Authorized Capital

The difference between called-up share capital and paid-up share capital is that investors have already paid in full for paid-up capital. Called-up capital has not yet been completely paid, though payment has been requested by the issuing entity. It is important to note that authorized share capital is disclosed in a company’s balance sheet only for information purpose and does not form part of the value of liabilities side in the balance sheet. This article looks at meaning of and differences between two different categorizations of share capital – authorized share capital and issued & paid up share capital. The paid-up capital of the company can never be more than the authorised capital of the company.

Different Types of Share Capital

If there is provision to increase or decrease the authorised capital then you can proceed with the following procedure. If there is no provision, then the AoA needs to be amended to accommodate the alteration of the authorised capital. In this example, the maximum capital required by the company that is Rs 500 Cr is called the Authorised Capital & Rs 250 Cr, the actual amount that is presently received is called Paid-up Capital. The Company has estimated that the project cost will be around Rs 500 Cr.

What is the Authorised Capital of a Company?

Any time the authorized share capital changes, these changes must be documented and made public. Paid-up Capital, on the other hand, is the actual amount of capital that has been paid by the shareholders to the company. It represents the portion of authorised capital that has been issued by the company, and for which shareholders have made payment. This means that the company is legally authorized to issue up to Rs. 10,00,000 worth of new shares.

All paid-up capital is listed under the shareholders’ equity section of the issuing company’s balance sheet. Authorized capital is the amount of funds that a company is allowed to get from selling its shares. It is written in the company’s Memorandum of Association (MoA), which is a public document that explains how the company is run. Authorized capital can be raised at any time if the shareholders pass a special vote and get the OK from the Central Government.

Which is registered under the Companies Act, 2013, recognized by the Govt. NBFC is one of the most common forms of financial institutions in India which contributes an outstanding percentage of GDP rise to the country’s economy. Though having a masters degree in Business Administration, her upbeat and optimistic approach for changes led her to pursue her passion i.e. Ariel Courage is an experienced editor, researcher, and former fact-checker.

If any change occurs in these two types of capitals, the ROC, Registrar of Companies should be upgraded and modified. The elaborated data will get documented in the firm’s master data of MCA and will also be presented to the public to review. Nevertheless, a firm might be granted permission to issue additional shares. Online legal India is always there for its customers so that you can get all the necessary guidance for your business & convenience. This above-mentioned article contains all the details of Authorised Share Capital & Paid-up Share Capital of a private company for your help.

Share capital refers to the funds raised by the company in the stock exchange by issuing equity or preference shares. The company’s share capital keeps changing over time because the company can issue more shares if it needs. And the increase in the number of issued shares increases the share capital. Thus, share capital is the company’s fund raised in the stock exchange by issuing shares. Also, this capital can change when a company issues additional shares in the exchange.

FAQs Authorised Capital & Related to Paid-up Capital

But out of those, authorized capital and paid-up capital are two important things. And that you might be willing to know as a trader in the Indian stock https://1investing.in/ market. Authorized capital is the maximum amount of capital a company is authorized to raise from its shareholders by issuing shares to them.

The maximum amount of capital a company is given permission to raise via the sale of stock is called its authorized capital. Typically, the amount of authorized capital a company applies for is much higher than its current need. This is done so that the company can easily sell additional shares down the road if the need for further equity arises. Since paid-up capital is only generated by the sale of shares, the amount of paid-up capital can never exceed the authorized capital.


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