What is Authorised Capital?
Authorised capital, also known as registered capital or nominal capital is the maximum amount of share capital a company is allowed to issue to shareholders as per its Memorandum of Association (MoA).
It serves as an upper limit on the number of shares a company can issue to ensure structured ownership and financial stability.
Purpose of Authorised Capital
- Regulates Share Issue – Prevents over issue of shares which can dilute ownership and control.
- Maintains Profit Distribution Balance – Ensures fair profit distribution without sudden dilution of shares.
- To Have Future Fund – Companies keep a portion of authorised capital unissued to raise funds when needed.
Difference Between Authorised Capital and Paid-up Capital
Authorised capital is the maximum capital a company is allowed to issue, as mentioned in its Memorandum of Association. It can only be increased with shareholder approval and legal procedures, including filing with the Registrar of Companies (ROC).
Paid-up capital, on the other hand, is the actual capital raised by issuing shares to shareholders. It is either equal to or less than the authorised capital and is reflected in the company's balance sheet. Unlike authorised capital, paid-up capital does not require prior approval for changes but must be reported to the ROC.
Key Takeaways
- Faster Capital Increase – Some governments have made it easier to increase authorized capital for business growth.
- Digital ROC Filing – Online systems have made it easier to modify authorized capital without paperwork.
- Startups and MSME Trends – Many startups are registering with lower paid-up capital and higher authorized capital for future growth.
