Difference between Authorized share capital and Paid-up capital

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It’s common for businesses to raise money through stock or equity offerings, such as for expansion and debt repayment. However, the two terms such as authorized share capital and paid-up. We’ll go through some of the terminologies such as authorized capital and paid-up capital that comes up when a company issues shares in order to generate money in this article.

What is an Authorized Share Capital?

  • The maximum amount of capital a corporation can legally raise from its shareholders via the issuance of shares is known as authorized share capital.
  •  It is not necessary for a corporation to issue all of its authorized share capital through a public offering. Depending on the company’s needs, it may opt to issue capital at various points throughout the process.

  • The authorized capital of a corporation must be stated in the Memorandum of Association (MOA).
  • The authorized capital is listed in the Company’s Memorandum of Association under the heading “Capital Clause.”
  • Authorized Share capital is decided prior to the Company Formation.
  • It is possible to expand the authorized capital at any moment after fulfilling the relevant legal requirements.

What is Paid-up Capital?

  • A company’s paid-up capital is the amount of money that shareholders have invested in the business in exchange for the shares they own.
  • It is the actual and first capital raised by the corporation via the issuance of shares.
  • Typically, a corporation raises money by issuing new shares of stock, which are then included in the firm’s paid-up capital.
  • A company’s paid-up capital is always less than its authorized share capital since it cannot issue shares beyond the limit of its authorized share capital.
  • Prior to the Companies Act, 2013, private limited companies were required to have a minimum paid-up capital of Rs. One lakh under the Companies Act 2013. Thus, stockholders had to invest Rs. One lakh in the firm by purchasing shares.
  • However, There is now relief for small businesses under the Companies Amendment Act, 2015. As a result, no minimum initial investment is required to establish a private limited company.
  • Thus, You can have Online Private Limited Company Registration with even zero paid-up capital.

Know about the differences between Authorized Share Capital and Paid-Up Capital

differences between Authorized Share Capital and Paid-Up Capital

Authorized Share Capital Paid-Up Capital
The Maximum Amount of shares the company can issue is known as Authorized Share Capital.

The Amount of Shares the company issues to the shareholders is known as Paid-Up Capital.

To increase the Authorized Share Capital, you need to comply with all the legal requirements first. You can easily increase the paid-up capital up to the amount of Authorized Share Capital.
Authorized Share Capital can not be zero. Paid-Up capital can be zero.
Nothing here implies that the debtor owes anyone anything. Shares can be issued and repurchased by a firm, but only if certain requirements are met.

What are the benefits of Increasing Authorized Share Capital?

  • The firm will be able to focus on its business expansion without borrowing money or receiving funding from traditional sources thanks to the additional revenue gained from stock sales.

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  • The company’s total value rises as a result of increased share capital. To put it another way, this boosts the company’s borrowing power.

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