When a company is registered under the Companies Act, 2013, it must specify its share capital in the Memorandum of Association (MOA). This share capital is divided into two important categories — Authorized Capital and Paid-up Capital.
Understanding the difference between these two terms is essential for company owners, investors, and professionals. Both types of capital represent different aspects of a company’s financial structure and legal compliance.
Let’s explore what each term means and how they differ.
🏛️ What is Authorized Capital?
Authorized Capital is the maximum amount of share capital that a company can issue to its shareholders. It represents the upper limit of a company’s funding capacity through share issuance.
This amount is mentioned in the MOA (Clause V) and can only be increased by following proper procedures and filing Form SH-7 with the Registrar of Companies (ROC).
For example, if a company has an authorized capital of â‚ą50 lakh, it can issue shares worth up to â‚ą50 lakh but not beyond that unless it increases its authorized limit.
Key Points:
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It sets the limit for total shares that can be issued.
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Mentioned in the company’s Memorandum of Association.
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Can be increased with shareholder approval and ROC filing.
đź’µ What is Paid-up Capital?
Paid-up Capital is the actual amount of money received from shareholders in exchange for the shares issued. It is part of the authorized capital but reflects only the portion that investors have paid.
For instance, if the authorized capital is â‚ą50 lakh and the company issues shares worth â‚ą25 lakh that are fully paid by shareholders, then â‚ą25 lakh becomes the paid-up capital.
Key Points:
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It represents real funds received by the company.
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It cannot exceed the authorized capital.
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It shows the true financial commitment from shareholders.
⚖️  Key Differences Between Authorized and Paid-up Capital
| Basis | Authorized Capital | Paid-up Capital |
|---|---|---|
| Meaning | Maximum share capital the company can issue | Amount of capital actually received from shareholders |
| Mentioned In | Memorandum of Association (Clause V) | Company’s financial statements |
| Change | Can be increased through ROC filing (Form SH-7) | Increases when new shares are issued |
| Limit | Sets the upper limit of share issuance | Must always be less than or equal to authorized capital |
| Example | â‚ą50 lakh total possible share issue | â‚ą25 lakh actual share issue and payment |
| Legal Requirement | Required at the time of incorporation | Required to start business operations |
| Purpose | To define company’s capital capacity | To show real money received for issued shares |
🧠 Why the Difference Matters
Understanding the difference between authorized and paid-up capital helps ensure proper ROC compliance, capital planning, and investor transparency.
When a company plans to raise additional funds, it must first verify if its authorized capital allows it. If not, the company must increase it before issuing new shares.
This process ensures that the company operates within legal limits and maintains financial clarity.
âś… Conclusion
In summary, authorized capital defines the company’s potential to raise funds, while paid-up capital reflects the actual amount received.
Both terms are closely linked yet serve different purposes — one is a limit, and the other is a reality. Maintaining clarity between them is vital for every business that wishes to grow transparently and remain compliant with ROC regulations.