Each Company independent of size, kind of business, classification of business and so forth will have its offer capital classified under different sorts in the fiscal report.
Contents
- 1 What is the Authorized Capital and Paid-up Capital?
- 2 Authorized Capital
- 3 Paid-up Capital
- 4 💼 What is Authorised Capital and Paid-Up Capital?
- 5 1️⃣ Authorised Capital (Registered Capital)
- 6 2️⃣ Paid-Up Capital
- 7 📊 Summary Table
- 8 🛠️ How to Increase Capital
- 9 🧠 Real-World Example
- 10 What is Authorised Capital and Paid Up Capital?
- 11 Unit 4: SHARE CAPITAL & DEBENTURE Syllabus
What is the Authorized Capital and Paid-up Capital?
Each Company independent of size, kind of business, classification of business and so forth will have its offer capital classified under different sorts in the fiscal report. Share capital is the part of the capital raised by the company from the issue of the shares. There are two kinds of share capital: Authorized Capital and Paid-up Capital.
Authorized Capital
· Authorized capital or registered capital is the maximum amount of capital for which shares can be issued by a company to its shareholders.
· The maximum permissible limit is to be mentioned in the company’s Memorandum of Association (MoA) under the title ‘Capital Clause’. However, the limit can be increased later on by following the procedure prescribed by the law.
· The maximum limit is capped for the issue of shares but there is a possibility that some amount of the authorized capital might remain un-issued. It is not mandatory for the company to issue all of its authorized capital within the public subscription. It may vary with the demand and requirements of the company.
· For example, if a company has authorized share capital of ₹ 1,000,000 then it can issue shares worth up to ₹ 1,000,000 to its shareholders and not past it. However, the company can choose to issue only half the amount and keep the other half un-issued.
Paid-up Capital
· Paid-up capital is the amount of money received by the company in exchange for the shares issued to its shareholders. This sum of money parts a form of the company’s finance and is also raised as Initial Public Offering.
· It can be less than or equal to authorised capital since the company is not allowed to issue shares worth more than its authorised capital.
· Before the 2015 amendment of the Companies Act, it was mandatory for a private limited company to have a minimum paid-up capital of ₹ 1,00,000 and ₹ 5,00,000 for a public company. There is a relaxation on the minimum requirement since the amendment of 2015.
· A company can buy its shares back under certain circumstances, by following the procedure prescribed by the law.
💼 What is Authorised Capital and Paid-Up Capital?
(As per Companies Act, 2013 – India)
When incorporating a company, capital is a key component that defines the financial structure of the business. Two of the most commonly referred terms are:
1️⃣ Authorised Capital (Registered Capital)
Definition:
Authorised capital is the maximum amount of share capital that a company is legally allowed to issue to its shareholders as per its Memorandum of Association (MoA).
🔹 Think of it as the “ceiling” on how much capital a company can raise through the issue of shares.
Key Points:
- Decided at the time of company registration.
- Can be increased later with shareholder approval and ROC filing.
- No need to issue the entire authorised capital initially.
Example:
If a company has ₹10 lakh authorised capital, it can issue shares up to ₹10 lakh — but not more unless authorised capital is increased.
2️⃣ Paid-Up Capital
Definition:
Paid-up capital is the actual amount received by the company from shareholders in exchange for shares. It is a portion of the authorised capital that has been issued and fully paid for.
🔹 Think of it as the “real money invested” by shareholders in the company.
Key Points:
- Paid-up capital cannot exceed authorised capital.
- Minimum paid-up capital required for a private company is ₹0 (since 2015 amendment).
- Can be increased by issuing more shares (up to authorised limit or after increasing it).
Example:
If a company has ₹10 lakh authorised capital and issues shares worth ₹3 lakh to shareholders, then paid-up capital is ₹3 lakh.
📊 Summary Table
| Aspect | Authorised Capital | Paid-Up Capital |
|---|---|---|
| Meaning | Max capital a company is allowed to issue | Actual capital received from shareholders |
| Limit | Set in MoA; can be changed by filing Form SH-7 | Cannot exceed authorised capital |
| ROC Fees | Based on authorised capital | Not based on paid-up capital |
| Minimum Requirement | ₹1 lakh (no longer mandatory) | ₹0 (for private co.) |
| Increase Involves | MOA alteration + SH-7 form | Share issue/allotment process (Form PAS-3) |
🛠️ How to Increase Capital
| Type | Process |
|---|---|
| Authorised Capital | Alter MoA → Pass resolution → File Form SH-7 |
| Paid-Up Capital | Issue shares → Allotment → File Form PAS-3 |
🧠 Real-World Example
ABC Pvt Ltd:
- Authorised Capital: ₹10,00,000
- Issued Capital: ₹5,00,000
- Paid-Up Capital: ₹3,00,000
👉 Company can still issue ₹7,00,000 worth of shares without increasing authorised capital.
Would you like:
- A template for MOA alteration to increase authorised capital?
- A step-by-step guide to file SH-7 and PAS-3 with ROC?
- A visual chart showing capital structure?
Let me know—I can generate and tailor resources for your use case!