Authorised Capital vs Paid Up Capital – Know The Difference

The number of companies incorporated has steadily increased in recent times. Apart from the daily business operations, one of the company’s core tasks is to raise capital to scale up the business. If you are a new Entrepreneur who has set up a company for the first time, it is very important to know the key differences between paid-up capital and authorized capital.

Irrespective of the size of the company and the business category, it has to show the share capital under various types in the financial statement.

Different types of share capital

Here is the list of different types of capital:

• Authorized share capital
• Paid-up capital
• Issued share capital
• Subscribed capital
• Unissued share capital
• Reserve share capital
• Called-up capital
• Uncalled share capital
• Fixed and circulating share capital

What is authorized capital?

Authorized capital is the highest amount a company can issue to the shareholders. It is also known as nominal capital or registered capital. This amount is agreed upon when a company is formed. This amount is usually raised by issuing shares.

The entire amount is not issued as shares. A part of it is reserved so that the company can raise capital if needed in the future.

Features of authorized capital

• The maximum amount a company can issue is mentioned in the Articles of Association and the Memorandum of Association.
• The total amount of shares that a company can issue is set beforehand. Hence, the price of each share is also fixed.
• While calculating the company’s net worth, the Authorized capital is not considered.
• ROC fees will increase with the approved capital.
• A company can issue few shares than the total authorized capital.
• You can change the Authorized capital anytime after the company’s incorporation.
• Higher fees are paid to the Registrar of the companies if the authorized capital is increased.

What is paid up capital?

Paid-up capital is the amount a company receives by selling the shares. The paid-up capital cannot be more than the authorized capital. As per the Companies Amendment Act of 2015, there is no minimum requirement of paid-up capital a Private Limited Company can issue to the shareholders. It can be either partially or fully paid up.

Within 30 days of the share allotment, you must deposit the paid-up capital in the company’s account. If the paid-up capital has to be changed, it has to be notified to the Registrar of Companies.

Features of paid up capital

• Within 60 days of incorporation, the company must issue the paid-up capital to the shareholders.
• The paid-up capital amount must be the same as mentioned in the Memorandum of Association during the company’s incorporation.
• Paid-up capital can be used for the company’s expenses.
• Paid-up capital is considered in the company’s net value assessment. 

Difference between authorized capital vs paid up capital

• The maximum value of shares that a company can transfer is authorized capital. On the other hand, paid-up capital is the total value of shares you can issue to the public.
• The company can increase the authorized capital by taking approval from the board members. On the other hand, paid-up capital can be increased only if the authorized capital is increased.
• Authorized capital is not considered in the company’s asset value, while paid-up capital is considered in the company’s asset value.
• The authorized capital cannot go beyond the paid-up capital, while the paid-up capital can be equal to the authorized capital.

Authorised Capital vs Paid Up Capital FAQs

Conclusion

We hope this article has provided enough details on the differences between paid-up capital and authorized capital.