AUTHORISED CAPITAL VS.

PAID UP CAPITAL

Every Company irrespective of size, type of business, category of business etc. will have its
share capital classified under various types in the financial statement.
However, Companies Amendment Act, 2015 have omitted the provision of minimum paid
up capital requirement for the Companies but the requirement of authorised share capital still
exists. In this Article, we shall discuss the difference between the authorised and paid up
share capital in detail.
For every company, the capital structure would be broadly divided into two parts:

 Authorised Share Capital

 Paid up share capital

Authorised Share Capital

1. It is the most extreme measure of the capital for which shares can be issued by the
Company to investors.

2. The Authorized capital is specified in the Memorandum of Association of the

Company under heading of "Capital Clause". It is even chosen preceding to
incorporation of the Company.

3. The Authorized capital can be expanded whenever in future by following important

steps as required by law.
For example: If MNO Pvt Ltd has an authorised capital Rs. 10 lakhs and shares issued upto
an amount of Rs.5 Lakhs to shareholders, it means XYZ Pvt Ltd has issued the shares not in
excess of the maximum limit i.e. authorised capital of the Company and also has option in
future to issue more shares amounting to Rs.5 lakhs without raising the authorised share
capital 
However, if MNO Pvt Ltd has issued shares of an amount of Rs.15 Lakhs to shareholders
with same authorised capital of Rs 10 Lakhs, it means Company has issued in excess of the
maximum limit and hence it is not allowed under law. To do so, first the process of
increasing authorised share capital has to carry out and then issue of shares to shareholders
can be done.
A company does not usually issue the full amount of its authorized share capital. Instead,
some will be held in reserve by the company for possible future use. The amount of share
capital or equity financing a company has can change over time. A company that wishes to
raise more equity can obtain authorization to issue and sell additional shares, thereby
increasing its share capital.

Paid up share capital

It is an amount of money for which shares of the Company were issued to the shareholders
and payment was made by the shareholders.
 1. At any point of time, paid up capital will be not exactly or equivalent to
authorised share capital and the Company can't issue shares past the approved
share capital of the Company.

2. With the Companies Amendment Act 2015, there is no base necessity of paid
up capital of the Company. That implies currently Company can be shaped
with even Rs.1000 as paid up capital.
In case of any change in the authorised and paid up share capital, Registrar of Companies
(ROC) needs to be updated with. The details will be recorded in the Companies Master Data
of MCA and will be available for public to view the data.
A private limited company or one person company or limited company will have its share
capital classified under various types in the financial statements. Recently, vide
the Companies Amendment Act, 2015, the requirement for paid-up capital for company has
been removed. However, the requirement for authorised capital still exists.
Paid-up capital is created when a company sells its shares on the primary market, directly to
investors. Paid-up capital is important because it's capital that is not borrowed. A company
that is fully paid-up has sold all available shares and thus cannot increase its capital unless it
borrows money by taking on debt. Paid-up capital can never exceed authorized share capital.
In other words, the authorized share capital represents the upward bound on possible paid-up
capital.

Paid up capital doesn't need to be repaid. Paid-up capital may have costs associated with
it. In capital budgeting, paid-up capital is most often referred to as equity capital. In the great
debate on the relative benefits of debt versus equity, the absence of required repayment is
among equity's main advantages.

Paid-up capital is listed under stockholder's equity on the balance sheet. This category is

further subdivided into the common stock and additional paid-up capital sub-accounts. The
price of a share of stock is comprised of two parts: the par value and the additional premium
paid that is above the par value. The total par value of all shares sold is entered under
common stock, while the remainder is assigned to the additional paid-up capital account.
Paid-up capital can be used in fundamental analysis. Companies that utilize large amounts of
equity funding may carry lower amounts of debt than companies that do not. A company with
a debt to equity ratio that is lower than the average for its industry may be a good candidate
for investing because it indicates prudent financial practices and a decreased debt burden
relative to its peers.

The amount of authorized share capital must be listed in the company's founding documents.
Any time the authorized share capital changes, these changes must be documented and made
public.

Paid-up capital can be found or calculated in the company's financial statements.

The Securities and Exchange Commission (SEC) requires publicly traded companies to
disclose all sources of funding to the public.
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