Authorised and Paid-up Capital

What it means

Authorised capital is the maximum amount of share capital a company is allowed to issue. It is stated in the capital clause of the Memorandum of Association (MOA). Paid-up capital is the part of it that has actually been issued to shareholders and paid for. Authorised capital is a ceiling. Paid-up capital is the real money the owners have put in through shares.

How it works

• Paid-up capital can never be more than authorised capital.

• There is no minimum paid-up capital for a private limited company. Many start with ₹1,00,000 or even less.

• Incorporation fees and stamp duty depend on authorised capital. MCA charges no registration fee for authorised capital up to ₹15 lakh, though stamp duty still applies as per the state.

• To increase authorised capital, the company needs a shareholders’ ordinary resolution (if the Articles allow it) and an altered MOA. It must file form SH-7 with the ROC within 30 days, paying the ROC fee and stamp duty on the increase.

• Share premium is not counted towards authorised capital. Only the face value of shares is.

• Paid-up capital is shown in the balance sheet under “Equity share capital” and also appears in the company’s MCA master data.

Example

Brightpath Tech Private Limited has authorised capital of ₹10,00,000, divided into 1,00,000 equity shares of ₹10 each. The two founders hold 10,000 shares, so paid-up capital is ₹1,00,000.

An investor wants to put in ₹30,00,000 for 50,000 new shares at ₹60 each (face value ₹10 plus premium ₹50).

• Face value of new shares: 50,000 x ₹10 = ₹5,00,000

• Premium: 50,000 x ₹50 = ₹25,00,000, which goes to securities premium, not share capital

• Paid-up capital after the issue: ₹1,00,000 + ₹5,00,000 = ₹6,00,000

This is within the ₹10,00,000 ceiling, so no increase is needed. If the investor wanted 1,00,000 shares instead, paid-up capital would become ₹11,00,000. The company would first have to raise authorised capital, for example to ₹15,00,000, and file SH-7.

Key points to remember

• Increase authorised capital before you allot shares above the limit, not after.

• Do not keep authorised capital unnecessarily high, because higher authorised capital means higher ROC fees and stamp duty.

• Money received for shares must be allotted within 60 days and reported in PAS-3 within 30 days of allotment.

• Banks and tenders often look at paid-up capital and net worth, not authorised capital.