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.
For every company, the capital structure would be broadly divided into two parts:
i. “Authorised share capital”;and
ii. “Paid up share capital”.
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.
1. 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 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 upto 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 option in future to issue more shares amounting 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 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 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.
2. Paid up share capital
- It is a 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.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.