Meaning of Authorised Capital
Known as the registered capital or nominal capital of the company, Authorised Capital is the maximum amount of share capital that a company is allowed to issue to its shareholders as per its constitutional documents. Shares are defined as the financial instruments that form units of the overall capital. It is used to raise funds from the general public.
Purpose of Authorised Capital
It is used to limit the ability of directors to allot new shares which may have consequences over the control over the company. It is also used to prevent any shift in the profit distribution balance. Often, the amount provided as authorised capital is not fully used and a small percentage is kept as a safety buffer to raise additional capital when need arises.
Difference Between Authorised and Paid up Capital
Authorised capital
- It is the maximum amount of capital for which shares can be issued.
- The amount of authorized share capital is mentioned in the Memorandum of Understanding (MOU) of the Company.
- The authorized capital can be altered only after following the procedure provided by law which involves the approval of the shareholders and an additional fee being paid to the Registrar of Companies (ROC).
Paid up capital
- It is the amount of money for which the shares of the company have been issued and the payment has been made by the shareholders.
- The paid up capital is ether less than or equal to the authorized capital of the company.
- Any changes in the authorized capital needs the post facto information to be provided to the ROC.
