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 its financial statement.

However, the 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, and
Paid-up Share Capital.

What is Authorised Capital?

Authorised capital, sometimes referred to as registered capital or nominal capital, is the maximum amount of capital a company can obtain to ensure its smooth operations. This sum is determined during the incorporation process of the company by its shareholders, and is mentioned in the Memorandum of Association. Since it is the maximum capital limit, a company cannot exceed this limit while issuing or selling. In other words, a company is not allowed to issue/sell shares worth more than this amount. However, the authorised capital can be raised in the future by passing a resolution to that effect in the general meeting of shareholders.

Let’s dive into the importance of authorised capital with the help of an example. Assume, a company has an authorised capital worth Rs.20 lakhs. In that case, it is permitted to issue and sell shares up to Rs.20 lakhs only. If it wishes to sell shares worth more than this amount, it will first have to raise the authorised capital through a resolution at the general meeting. Besides limiting the shares sold by a company, authorised capital also determines the ROC fees for company registration and other compliances fees for companies.

What is Paid Up Capital?

Paid Up Capital, also known as net worth, is the actual amount a company receives from its shareholders in exchange of shares they’ve bought. Paid Up capital may be equal to or less that the subscribed capital which is the worth of shares a company has sold. The paid up capital can be less than the subscribed capital if the shareholders fail to deposit the entire amount of their respective share capital to the company at once. This leaves them in dues towards the company which have to be paid later. Note that this due amount determines the individual liabilities of each shareholder in a company.

Differences Between Authorised Capital and Paid Up Capital

Parameters	Authorized Capital	Paid-up Capital
Definition	Authorised Capital is the maximum worth of shares a company can issue.	Paid-up Capital is the actual worth of shares a company receives.
Documentation	Authorised capital is mentioned in the Memorandum of Association of a company	Paid Up capital is mentioned in the Balance Sheet of the Company
Role in the Net Worth	The net worth of a company is not determined by its authorised capital.	The paid up capital is the net worth of the company.
Minimum value for Setting Up a Company	No minimum value prescribed under law. Authorised capital is decided at the will of shareholders.	No minimum value prescribed under law. Companies can be set up at Nil. paid up capital as well.
Restriction in selling shares	A company is not permitted to issue shares worth more than its authorised capital.	The paid-up capital places no limits on the sale of shares by the company.

FAQs

What is the difference between authorised capital and paid up capital of a company?

he major difference between authorised capital and paid up capital is that authorised capital is the maximum amount of capital a company is legally permitted to raise through selling its shares, while paid up capital is the actual amount a company has received on the sale of its shares.

Can a company's paid up capital exceed its authorised capital?

No. The paid up capital of a company can never exceed its authorised capital. Authorised capital is the maximum limit of capital a company can obtain.