Difference between Authorised capital and Paid up capital

Economy and Finance

Difference between Authorised capital and Paid up capital

11 Jul 2023 Zinkpot 165

Authorised Capital : Authorised capital can be defined as the largest amount of capital that a company can issue through its shareholders. It is the amount that the company targets to raise as funds by selling its equity shares.
It is basically the amount of capital that the company requires for smooth functioning.
Authorised capital amount is generally fixed. The company cannot issue shares or raise funds exceeding this value. In other words, it restricts the maximum number of shares that a company can issue.
The limit is outlined in a company’s constitutional documents and can only be changed with approval of the shareholders and by paying an additional fee to the Registrar of Companies.
Having a fixed authorised capital allows companies to limit directors from allotting themselves new shares and eventually taking control of the company. One of the other functions of authorised capital is to keep a check on the balance of profit distribution.
Companies usually don’t issue all the authorised share capital to the public. A part of it is always reserved to raise capital if the company needs it in the future.
Authorised Capital of a company needs to be specified in the Memorandum of Association and Article of Association of a company
Paid-up Capital : Paid-up capital can be defined as the amount a company receives from shareholders by selling its shares. It is basically a component of authorised capital.
A company cannot issue paid-up share capital more than the authorised share capital. As it is part of the authorised capital, it can only be increased if the authorised capital is increased.
It must be issued by the company within 60 days of the incorporation. The capital collected from the shareholders must be deposited in the company’s account within 30 days of the share allotment.
Paid-up capital is considered while assessing a company’s net worth, unlike, authorised capital.
The Companies Act, 2013 earlier mandated that all Pvt Ltd companies have a minimum paid-up capital of Rs.1 lakh but it was later removed under the Companies Amendment Act, 2015 Now, there is no requirement for any minimum capital to be invested to start a private limited company.