What is the difference between paid up and authorised capital? Asia Law Network Blog

The stamp duty (usually 0.15% of authorized capital) applies when you register or increase capital. A 2021 Supreme Court ruling made this duty a one-time payment with a maximum cap, whatever the future capital increases might be. Authorized capital is the maximum amount of share capital that a company is authorized to issue, while Paid-Up Capital is the actual amount of share capital issued and paid for by shareholders. On the other hand, reserve capital is a part of the authorised share capital. A special resolution by board members with more than three-fourth of the votes in favour is needed to utilise Reserve Capital. Increased authorized capital portrays a growth-oriented business with financial strength and, therefore, creates very positive investor perception.

Authorized vs Paid Up Capital: Expert Guide to Company Registration

And it means the most significant amount of capital available to the company to raise the fund issuing shares. The paid-up capital is the amount of the shares a company receives when the shareholders buy the issued shares. Authorized share capital means the amount of the share capital at which the company is authorized to raise. It is mentioned in the MOA of the company and can only be changed with its shareholders. It simply represents the maximum number of shares that can be issued in exchange for raising funds. Also, before the company starts selling its share in the open market, it needs to mention its authorized capital first in MOA.

Step 3: Determine paid-up capital based on shareholder commitment

Founders who manage their capital structure well are better prepared for compliance, growth, and investor discussions. However, if you’re unsure about how to structure your company’s capital effectively, then consult the corporate advisors nearby; they will assist you with the right funding strategy. Our blog on the Role of Corporate Advisors can help you well to understand how they can be helpful for you. Paid-up capital – the actual capital received by the company from shareholders in exchange for the shares issued.

Alteration of the Object Clause of Memorandum of Association

• The confirming bank guarantees payment to the beneficiary, holding equal liability as the issuing bank, ensuring that payments will be honored upon proper presentation.
• Companies must also ensure timely compliance with advance tax payments, TDS/TCS obligations, and tax audit requirements (if applicable) to avoid penal consequences.
• Promoters play a pivotal role in the early stages of a company’s lifecycle, from conceptualising the business idea to ensuring its legal incorporation and securing initial funding.
• Knowing these terms and understanding interrelation is very important for Company Directors to plan their business and the funds required for business.

LCs simplify complex international transactions by providing a standardised payment mechanism across different countries. InstaFinancials is an award winning Indian Corporate Intelligence Platform where you can get Financial & Non Financial Information about any Indian Company & Director. In many cases, a founder can also act as a promoter, but not all promoters are founders. Individuals who promote companies sporadically, typically when they spot a business opportunity, such as a seasoned entrepreneur launching a startup. • Deductions available for hiring new employees (Section 80JJAA), inter-corporate dividends (Section 80M), in-house R&D (Section 35(2AB)), etc.

And the increase in the number of issued shares increases the share capital. Thus, share capital is the company’s fund raised in the stock exchange by issuing shares. Also, this capital can change when a company issues additional shares in the exchange.

Is authorised capital the net worth of a company?

A company that issues difference between authorized capital and paid up capital 100 shares at ₹10 par value but sells them at ₹15 each would have ₹1,500 paid-up capital (₹1,000 par value + ₹500 additional paid-in capital). A company with 1 lakh authorized shares at ₹100 face value would have an authorized capital of ₹1 crore. The paid-up capital collected from the shareholders must be deposited in the company’s account within 30 days of the share allotment. However, in case a company wants to change its minimum paid-up capital, it has to notify the Registrar of Companies and update the data on the latter’s website.

Clear can also help you in getting your business registered for Goods & Services Tax Law. In case of any change in the authorised and paid-up share capital, the Registrar of Companies (ROC) needs to be updated. The details will be recorded in the Companies Master Data of MCA and will be available for the public to view the data. If there is provision to increase or decrease the authorised capital then you can proceed with the following procedure.

The company can increase or decrease the authorised share capital based on its requirement. A letter of credit (LC) primarily ensures payment for a specific transaction upon meeting predetermined conditions. In contrast, a bank guarantee (BG) acts as a financial backup that compensates for potential losses if one party fails to meet their obligations. The Import Export Code (IEC) is a mandatory document required for all businesses involved in international trade.

All About Corporate Tax in India

In the world of corporate finance, understanding the distinction between authorised capital and paid up capital is crucial. Both terms are fundamental to a company’s financial structure and have significant implications for its operations and growth potential. This article will delve into the nuances of authorised capital vs paid up capital.

No, the paid-up capital of a company cannot be more than its authorized capital. The paid-up capital is the amount of money that the company has actually received from shareholders for the shares that it has issued. Since the authorized capital is the maximum amount of capital that the company is legally allowed to issue, the paid-up capital cannot exceed this amount. Authorized capital, also known as registered capital or nominal capital, is the maximum amount of capital that a company is legally authorized to issue, as stated in its articles of association. This is the maximum amount of capital that the company can raise from the issuance of new shares.

Eventually, it can ensure a solid foundation for sustainable business growth. Issued capital is the aggregate value of the consideration received by a company for all the shares it has issued. There is no minimum issued capital requirement under Singapore law except for certain types of companies such as banks and insurance companies. To conclude, authorized capital comprises the total shares that any company can issue, whereas paid-up capital comprises the amount received by the company based on the shares issued. A company can change its authorized capital only by meeting specific requirements stated and by the shareholders’ approval, whereas the primary market drives paid-up capital. At any point in time, the company’s paid-up capital cannot exceed its authorized capital.

In other words, issued capital is the capital that the founders or shareholders have agreed to repay, and the shares have been delivered for ownership. Authorized capital is the entire nominal value of the company’s shares mentioned in the articles of association. In principle, this capital is the total number of shares that can be issued by a PT.

• Also, it is used to determine the collective and individual liabilities of the shareholders towards the company.
• A company can change its authorized capital only by meeting specific requirements stated and by the shareholders’ approval, whereas the primary market drives paid-up capital.
• This requirement no longer exists, though companies still need ₹1 lakh authorized capital.
• In essence, authorized capital is a theoretical limit, while paid-up capital is the tangible amount of capital that has been invested in the company.

It is viewed as the difference between a company’s total assets and total liabilities. It can be increased with an increase in the authorized capital when such addition of funds are used effectively to add more value to the company. Furthermore, Paid-Up Capital plays a significant role in determining the company’s financial leverage and solvency. A higher Paid-Up Capital indicates a stronger financial position for the company, as it signifies that shareholders have contributed more funds to support the company’s operations. This can enhance the company’s credibility and attractiveness to investors, lenders, and other stakeholders.