Difference between Authorised and Paid up Share 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.

Authorised Share Capital

• It is the maximum amount of the capital for which shares can be issued by the Company to shareholders.
• The Authorised capital is mentioned in the Memorandum of Association of the Company under the heading of “Capital Clause”. It is even decided prior to incorporation of the Company.
• The Authorised capital can be increased at any time in future by following necessary steps as required by law.

For example: If XYZ Pvt Ltd has an authorised capital Rs. 20 lakhs and shares issued up to an amount of Rs.15 Lakhs to shareholders, it means XYZ Pvt Ltd has issued the shares not in excess of the maximum limit ie. authorised capital of the Company and also has the option in future to issue more shares amounting up to Rs.5 lakhs without raising the authorised share capital.  

However, if XYZ Pvt Ltd has issued shares of an amount of Rs.25 Lakhs to shareholders with the same authorised capital of Rs.20 Lakhs, it means Company has issued in excess of the maximum limit and hence it is not allowed under the law. To issue more amount of shares than the maximum limit of authorised capital, first, XYZ Pvt Ltd has to initiate the process of increasing authorised share capital and then issue shares to the shareholders.

Paid-up Share Capital

• It is the amount of money for which shares of the Company were issued to the shareholders and payment was made by the shareholders.
• At any point of time, paid-up capital will be less than or equal to authorised share capital and the Company cannot issue shares beyond the authorised share capital of the Company.
• With the Companies Amendment Act 2015, there is no minimum requirement of paid-up capital of the Company. That means now Company can be formed with even Rs.1,000 as paid-up capital.

In case of any change in the authorised and paid-up share capital, the Registrar of Companies (ROC) needs to be updated. The details will be recorded in the Companies Master Data of MCA and will be available for the public to view the data.

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