Important Keywords: Authorized Capital vs Paid-up Capital, Authorized Share Capital, Paid-up Share Capital, Difference between Authorized and Paid-up Capital, Increase Paid-up Capital, Increase Authorized Capital, Section 2(8) Companies Act 2013, Section 2(64) Companies Act 2013, Paid-up capital of private limited company, Authorized capital of company, Share capital structure, MCA authorized capital, PAS-3 filing, SH-7 form.
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Table of Contents
Overview
Under the Companies Act, 2013, Among the different types of share capital, Authorized Capital and Paid-up Capital are the two most important concepts that every entrepreneur and investor should understand. The Companies (Amendment) Act, 2015 removed the requirement of maintaining a minimum paid-up capital for companies; however, the requirement of having an Authorized Share Capital continues to exist.
Before amendment:
- Private company required minimum paid-up capital ₹1 lakh.
- Public company required minimum paid-up capital ₹5 lakh.
After amendment:
- "No minimum paid-up capital requirement exists."
Every company has a limit on the amount of share capital it can issue, known as Authorized Share Capital, while the amount actually received from shareholders against the shares issued is known as Paid-up Share Capital. As per the Companies Act, 2013, Authorized Share Capital is defined under Section 2(8), whereas Paid-up Share Capital is defined under Section 2(64).
Understanding the difference between Authorized Capital and Paid-up Capital is important for entrepreneurs, investors, and professionals because it helps in understanding a company's capital structure, fundraising capacity, and financial position.
In this article, we will discuss the meaning, differences, and Benefits of Authorized Share Capital and Paid-up Share Capital in detail.
A company's share capital is broadly divided into two main parts:
- Authorized Share Capital
- Paid-up Share Capital
What is Authorized Capital?
Section 2(8):
Authorized capital means such capital as is authorized by the memorandum of a company to be the maximum amount of share capital of the company.
Authorized Share Capital, also known as Nominal Capital or Registered Capital, is the maximum amount of share capital that a company is authorized to issue as mentioned in its Memorandum of Association. This amount is decided by the subscribers/promoters at the time of incorporation and mentioned in the Capital Clause of the MOA.
A company is not required to issue all of its authorized share capital at the time of incorporation. It may issue shares in one or more stages, depending on its funding requirements.
If the company needs to raise more capital in the future, it can increase its authorized share capital by following the procedure prescribed under the Companies Act, 2013 and filing the necessary forms with the Ministry of Corporate Affairs (MCA).
Example 1 : Face Value of ₹1
XYZ Private Limited has an authorized share capital of ₹10 lakh. The company decides to keep the face value of each share at ₹1.
- Authorized Share Capital: ₹10,00,000
- Face Value per Share: ₹1
- Maximum Shares the Company Can Issue: 10,00,000 shares
This means the company can issue up to 10 lakh shares. It cannot issue more unless it first increases its authorized share capital.
Example 2 : If Company does not issue all shares at once
PQR Private Limited has an authorized share capital of ₹20 lakh with a face value of ₹10 per share.
- Maximum Shares Allowed: 2,00,000 shares
- However, the company initially issues only 50,000 shares (worth ₹5 lakh) to its founders.
The remaining 1,50,000 shares can be issued later whenever the company needs more funds. The company is not required to issue all its authorized share capital at the time of incorporation.
Benefits of Authorized Capital
Authorized Capital offers several benefits by giving a company the flexibility to raise funds and grow in the future. Some of its key benefits include:
- Helps Raise Funds in the Future – Allows the company to issue additional shares when capital is needed.
- Supports Business Expansion – Makes it easier to raise funds for growth and expansion.
- Builds Investor Confidence – Shows the company's capacity to raise capital in the future.
- Reduces Frequent Amendments – Avoids the need to increase authorized capital repeatedly before issuing new shares.
- Provides Financial Flexibility – Enables the company to bring in new investors or issue additional shares when required.
- Helps in Strategic Planning – Supports long-term business growth and future fundraising plans.
- Ensures Legal Compliance – Helps the company issue shares within the limit prescribed under the Companies Act, 2013.
Documents required for increasing Authorized Capital
- Certified copy of Board Resolution
- Notice of General Meeting (AGM/EGM) along with Explanatory Statement
- Certified copy of Ordinary Resolution passed by shareholders
- Altered Memorandum of Association (MOA)
- Altered Articles of Association (AOA), if amended
- Certified copy of Special Resolution, if AOA is altered
- Payment details of ROC fees and applicable stamp duty
What is Paid-up Capital?
As per section 2(64) of Companies Act, 2013 said that “paid-up share capital” or “share capital paid-up” means such aggregate amount of money credited as paid-up as is equivalent to the amount received as paid-up in respect of shares issued and also includes any amount credited as paid-up in respect of shares of the company, but does not include any other amount received in respect of such shares, by whatever name called.
Let's understand this in a simple way:
Paid-up Share Capital is the actual amount of money that a company has received from its shareholders for the shares it has issued. In simple words, it is the money that shareholders have already paid to the company in exchange for their shares.
It includes only the amount paid towards the share capital. Any other money received from shareholders, such as share premium, is not included in the paid-up share capital.
Example 1
Suppose ABC Private Limited issues 1,000 shares with a face value of ₹10 each.
If all the shareholders pay the full amount, the company receives:
1,000 × ₹10 = ₹10,000
So, the company's paid-up share capital is ₹10,000.
Example 2
Suppose XYZ Private Limited is allowed to issue shares worth ₹10 lakh (authorized share capital).
However, it issues shares worth only ₹4 lakh, and the shareholders pay the full amount.
In this case:
- Authorized Share Capital = ₹10 lakh
- Paid-up Share Capital = ₹4 lakh
This means the company has actually received ₹4 lakh from its shareholders. The remaining ₹6 lakh can be raised later by issuing more shares, provided it stays within its authorized share capital.
Benefits of Paid-up Capital
Paid-up Capital represents the actual amount received by a company from its shareholders against the shares issued. It is an important part of a company's financial structure and provides several benefits, such as:
- Provides Actual Business Funds – Paid-up capital gives the company real funds that can be used for daily operations, investments, and business growth.
- Strengthens Financial Position – It represents the company's actual equity base and helps assess its financial standing.
- Shows Shareholders' Commitment – It reflects the amount invested by owners, showing their confidence and commitment towards the company.
- Supports Business Expansion – Companies can use paid-up capital to finance expansion plans, purchase assets, develop products, or enter new markets.
- Improves Credibility – A strong paid-up capital base can enhance the company's reputation among investors, banks, suppliers, and other stakeholders.
- Determines Ownership Rights – Paid-up capital helps determine the shareholders' ownership percentage, voting rights, and entitlement to dividends.
- Provides Long-Term Funding – Unlike borrowed funds, paid-up capital provides permanent capital for the company without regular repayment obligations.
- Helps in Obtaining Finance – A healthy paid-up capital position may improve the company's ability to attract investors or secure external funding.
- Supports Compliance and Record Keeping – Maintaining accurate paid-up capital records helps the company meet statutory requirements under the Companies Act, 2013.
- Reflects Company's Growth Potential – Increasing paid-up capital may indicate that the company is raising funds to support future growth and expansion.
Difference between Authorized capital and Paid-up capital
Here are the key differences:
| Basis | Authorized Share Capital | Paid-up Share Capital |
|---|---|---|
| Meaning | The maximum amount of share capital a company is allowed to issue to its shareholders. | The actual amount of money the company has received from shareholders for the shares issued. |
| Simple Meaning | The company's maximum limit for raising money through shares. | The money actually received by the company. |
| Mentioned In | Memorandum of Association (MOA). | Company's Balance Sheet. |
| When It Is Decided | At the time of company incorporation. | Whenever shareholders pay for the shares issued by the company. |
| Can It Be Changed? | Yes. The company can increase it by following the procedure under the Companies Act, 2013 and filing the required forms with the MCA. | Yes. It increases when the company issues new shares and the shareholders pay for them. |
| Relationship | Always equal to or more than the paid-up capital. | It can never be more than the authorized share capital. |
| Example | A company has an authorized share capital of ₹10 lakh. | If it has issued shares worth ₹4 lakh and received the money, its paid-up capital is ₹4 lakh. |
Note:
- Authorized Share Capital = Maximum Limit
- Paid-up Share Capital = Actual Money Received
Example:
Imagine you have a water tank with a capacity of 1,000 litres, but it currently contains only 400 litres of water.
- Tank Capacity (1,000 litres) = Authorized Share Capital
- Water Actually in the Tank (400 litres) = Paid-up Share Capital
Just as the water in the tank cannot exceed its capacity, a company's paid-up share capital cannot exceed its authorized share capital.
Step-by-Step Process to increase Authorized Capital in a company
Follow the below mention steps:-
- Check the Articles of Association (AOA)
- Verify whether the AOA allows an increase in authorized share capital.
- If not, amend the AOA by passing a Special Resolution.
2. Hold a Board Meeting
- Approve the proposal.
- Fix the date, time and venue of the General Meeting.
- Approve the notice and explanatory statement.
3. Hold a General Meeting (AGM or EGM)
- Send the notice to shareholders.
- Discuss the proposal.
4. Pass the Required Resolution
- Pass an Ordinary Resolution under Section 61(1)(a) to increase the authorized share capital.
- Amend Clause V (Capital Clause) of the MOA.
- If the AOA is amended, pass a Special Resolution under Section 14.
5. Prepare the Altered MOA
- Update the Capital Clause to reflect the revised authorized share capital.
6. File Form SH-7 with the ROC
- File within 30 days of passing the resolution.
- Attach the required documents.
- Pay the applicable ROC filing fees and stamp duty.
7. ROC Processes the Filing
- The Registrar verifies the documents.
- Once the filing is accepted, the revised authorized share capital is updated in the MCA records and reflected in the company's Master Data.
Step-by-Step Process to increase Paid-up Capital in company
The basic process to increase Paid-up Capital is as follows:
1. Check Available Authorized Capital
Before increasing paid-up capital, the company must ensure that sufficient Authorized Capital is available. A company cannot issue shares beyond its authorized capital limit. If required, the company must increase its authorized capital first.
2. Hold Board Meeting and Pass Resolution
The company conducts a Board Meeting to approve the proposal for increasing paid-up capital and decides the mode of raising funds, such as:
- Rights Issue (Section 62)
- Private Placement (Section 42)
- Other permitted methods of share issue
3. Obtain Shareholders' Approval (If Required)
Depending on the method of issue, shareholder approval may be required by passing the necessary resolution in a General Meeting.
4. Issue Shares and Receive Money
The company issues shares to eligible shareholders or investors and receives the share subscription money.
5. Allot Shares
After receiving the share money, the Board approves the allotment of shares to applicants, and the amount received becomes part of the company's paid-up capital.
6. File Return of Allotment with ROC
The company files Form PAS-3 (Return of Allotment) with the Registrar of Companies within 30 days from the date of allotment.
7. Issue Share Certificates
The company issues share certificates to shareholders within 2 months from the date of allotment.
8. Update Company Records
Finally, the company updates its statutory registers, including the Register of Members and share capital records.
* Board Approval → Decide Method of Issue → Shareholders' Approval (if required) → Issue Shares → Receive Money → Allot Shares → File PAS-3 with ROC → Issue Share Certificates.
Example: If a company has a Paid-up Capital of ₹10 lakh and issues new shares worth ₹5 lakh to investors, after receiving the money and completing all legal formalities, its Paid-up Capital will increase to ₹15 lakh.
Documents required to increase Paid-Up Capital
When a company increases its paid-up capital, it mainly needs to prove three things:
- Certified copy of Board Resolution
- Shareholders' Resolution (if applicable)
- Form PAS-3
- List of Allottees
- Bank Statement showing receipt of share application money
- Share Application Form/Offer Letter (depending on the mode of issue)
- Updated Register of Members
Conclusion
In the end, both Authorized Capital and Paid-up Capital play an important role in a company's growth and financial planning. While Authorized Capital determines the maximum amount of share capital a company is permitted to issue, Paid-up Capital reflects the real investment made by shareholders. Together, these concepts provide a clear picture of a company's capital structure, financial stability, and compliance with legal requirements, helping stakeholders make well-informed business and investment decisions.
Disclaimer: The information in this article is for general purposes only and may not fit your personal situation. It is not legal, financial, or professional advice, and you should not rely on it as such. Before making any decisions, consider if this information applies to you and, if needed, get advice from a professional. The information is correct at the time of publication. While we have tried to ensure it is accurate, Finodha.in is not responsible for any loss or damage caused by using this information.
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Hi, Go On, Tell Us What You Think about Authorized capital vs Paid-up capital! Did we miss something to explain in this Article? Come on! Tell us what you think about our article in the comment/e-mail section.Frequently Asked Questions (FAQs)
Question. What is authorized capital?
Answer. Every company has a limit on how many shares it can issue. This limit is called the authorized capital. It is the maximum amount of money the company is allowed to raise from its shareholders by issuing shares.
Every company has a limit on how much money it can raise by issuing shares. This limit is called authorized capital.
Question. What is paid-up capital?
Answer. Paid-up capital is the money that a company has actually received from its shareholders. You can say, it is the amount that shareholders have already paid to the company for the shares issued to them.
Question. What is the difference between authorized capital and paid-up capital?
Answer. The simple difference is that authorized capital is the company's maximum share-issuing limit, while paid-up capital is the actual money shareholders have paid to the company.
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Question. Can authorized share capital and paid-up share capital be the same?
Answer. Yes, authorized share capital and paid-up share capital can be the same.
Let's understand this with an example:
If a company has an authorized share capital of ₹10 lakh and issues shares worth ₹10 lakh, and shareholders pay the full amount, the company's paid-up share capital will also be ₹10 lakh.
Question. Can paid-up share capital be more than the authorized share capital?
Answer. No, paid-up share capital cannot be more than the authorized share capital.
Question. Can a company increase its authorized share capital after incorporation?
Answer. Yes, a company can increase its authorized share capital after incorporation by following the prescribed procedure under the Companies Act, 2013. For this, the company needs to pass the required resolution, alter its MOA, and file the necessary forms with the MCA.
Question. Can a company reduce its authorized share capital?
Answer. Yes, a company can reduce its authorized share capital by following the required procedure under the Companies Act, 2013. The company needs to alter its MOA and complete the necessary legal formalities to make the reduction effective.
Question. What is the process for increasing the authorized share capital of a private limited company?
Answer. To increase the authorized share capital of a private limited company, the company first needs to check its Articles of Association (AOA), pass the required board and shareholder resolutions, update its MOA, and file Form SH-7 with the Registrar of Companies within 30 days of approval.
Question. What compliance procedures are involved in increasing the paid-up share capital?
Answer. When a company wants to increase its paid-up share capital, it needs to issue additional shares, get the required approvals, receive payment from shareholders, and complete the necessary MCA filings to record the increase.
Question. What is the minimum paid-up capital required for registering a private limited company in India?
Question. Is the paid-up capital required to be fully paid at the time of incorporation?
Answer. Yes, shareholders need to pay the amount for the shares they have subscribed to, and that amount becomes the company’s paid-up capital. However, there is no fixed minimum paid-up capital requirement at the time of incorporating a private limited company in India.
Question. How do you calculate authorized share capital?
Answer. Authorized share capital is calculated by multiplying the total number of shares a company plans to issue by the face value of each share.
Formula: Authorized Share Capital = Number of Shares × Face Value per Share
Example: If a company plans to issue 1,00,000 shares with a face value of ₹10 each, its authorized share capital will be ₹10,00,000.
Question. How do you calculate paid-up share capital?
Answer.
Formula: Paid-up Share Capital = Number of Shares Issued × Amount Paid per Share.
Example: If a company issues 50,000 shares at ₹10 each and shareholders pay the full amount, the paid-up share capital will be ₹5,00,000.
Question. What is authorized share capital with an example?
Answer. Authorized share capital is the maximum amount of share capital a company is allowed to issue to its shareholders.
For example: if a company has an authorized share capital of ₹5 lakh with a face value of ₹10 per share, it can issue up to 50,000 shares.
Question. What is paid-up share capital with an example?
Answer. Paid-up share capital is the amount that a company has actually received from its shareholders for the shares it has issued.
For example: If ABC Private Limited issues 30,000 shares with a face value of ₹10 each and shareholders pay the full amount, the company will have a paid-up share capital of ₹3 lakh.
Question. Where can I find the authorized share capital and paid-up share capital of a company?
Answer. You can find the authorized share capital and paid-up share capital of a company on the MCA (Ministry of Corporate Affairs) website by checking the company’s Master Data. These details are publicly available for registered companies in India.
Question. Where can I find the list of shareholders of a company?
Answer. A company keeps the details of its shareholders in its Register of Members. To check available information about a company, you can visit the MCA portal and view its filed documents and records.
Question. How does authorized share capital affect company registration fees?
Answer. Authorized share capital affects the company registration fees because the MCA filing fees and stamp duty for incorporation are generally calculated based on the authorized capital of the company. A higher authorized share capital usually means higher registration fees and stamp duty.
Question. Does authorized share capital affect a company's valuation?
Answer. No, authorized share capital does not directly affect a company's valuation.
Question. How does paid-up share capital impact a company's credibility?
Answer. Paid-up share capital shows how much money the shareholders have actually invested in the company. A higher paid-up capital may create more confidence among investors, lenders, or business partners, but it does not alone decide the company’s success or credibility.
Question. What factors should be considered when deciding the authorized share capital?
Answer. While deciding the authorized share capital, a company should think about its future plans, how much funding it may need, and the possibility of expansion. Choosing the right amount helps the company raise funds easily in the future without unnecessary changes and additional costs.
Question. What is unissued authorized share capital?
Answer. Let's understand with this example:-
If a company has an authorized share capital of ₹10 lakh but has issued shares worth only ₹6 lakh, the remaining ₹4 lakh is its unissued authorized share capital.
Question. Is nominal capital the same as authorized share capital?
Answer. Yes, nominal capital and authorized share capital generally mean the same thing.
Question. Where does paid-up share capital appear in the company's balance sheet?
Answer. Paid-up share capital is shown in the company’s balance sheet under the “Share Capital” section. It reflects the actual amount that shareholders have invested in the company by paying for the shares issued to them.
Question. Can a company change its paid-up share capital after incorporation?
Answer. Yes, a company can change its paid-up share capital after incorporation.
Question. Is share premium included in paid-up share capital?
Answer. No, share premium is not included in paid-up share capital.
Let's understand through this example:
If:
Face value = ₹10
Issue price = ₹15
Then:
Paid-up Capital = ₹10
Share Premium = ₹5
Question. What happens if a company issues shares beyond its authorized share capital?
Answer. A company cannot issue shares beyond its authorized share capital. If it needs to issue more shares, it must first increase its authorized share capital by following the required procedure under the Companies Act, 2013.
Question. How is paid-up share capital different from net worth?
Answer. Paid-up capital is the money invested by shareholders, whereas net worth reflects the company’s actual financial position.
Question. Why do startups usually begin with a low paid-up share capital?
Answer. Startups usually begin with low paid-up share capital because they often start with limited funding needs and want to keep the initial setup cost low.
Question. What is the role of authorized share capital in raising funds?
Answer. Authorized share capital sets the limit up to which a company can raise funds by issuing shares. When a company needs more money for growth, it can issue shares within this limit, and if the limit is not enough, it can increase its authorized share capital by following the required procedure.
Question. Why is it important to understand authorized share capital and paid-up share capital?
Answer. Because it helps business owners and investors understand the company’s funding capacity and the actual investment made by shareholders.
Question. Is Authorized Capital shown in the Balance Sheet?
Answer. No. Only Paid-up Share Capital is shown under Equity and Liabilities, and Authorized Capital is disclosed in Notes to Accounts.
Question. Is there any minimum Authorized Capital?
Answer. No. The Companies Act, 2013 does not prescribe any minimum authorized capital.
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