Authorised Capital & Paid Up Capital

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What is Authorised Capital?

The authorised capital of a company is the maximum amount of share capital for which shares can be issued by a company. Authorised Capital might also be termed as a registered capital or nominal capital of the corporation.

The initial authorised capital of the Company is mentioned in the Memorandum of Association of the Company and is usually Rs. 1 lakh. The authorised 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. Though, there might be circumstances where some portion of the authorised share capital might remain un-issued.

All new companies must authorize a minimum amount of capital, which is Rs 1 lakh for Pvt Ltd Companies and Rs 5 lakh for Public Limited Companies.

What is Paid-up Capital?

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. Paid-up capital is created when a company sells its shares on the primary market directly to investors.

Thus, Paid up share capital is the amount of capital called-up, for which the company has already received the payment. Paid-up capital will always be less than authorised capital as a company cannot issue shares above it authorised capital.

Difference between Authorised Capital and Paid-up Capital:

Authorized capital is the maximum value of the shares that a company is legally authorized to issue to the shareholders. Whereas, paid-up capital is the amount that is actually paid by the shareholders to the company.

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

Authorized capital cannot be used in the calculation of net worth of a company, while paid-up capital is considered for net worth calculation.

Note: This Post was last updated on January 31, 2021

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Sunita

Founder & Director | COO & CHRO at eTaxFinance | Content Writer at eTaxFinance Blog | Department Head for Intellectual Property & Startup Team | Head-Corporate Strategy and Planning