differences between Authorized Capital and Paid-up Capital
Companies issue shares of stock or equity especially for raising fund. All the funds raised in a company through the issue of shares form a part of the Share Capital. Authorized share capital and paid-up share capital are the two types of the capital structure of a company.
What is Authorized capital?
Authorized capital is the maximum amount of capital a company is authorized to raise from its shareholders by issuing shares to the stock market. It is not necessary to issue the entire amount of the authorized capital in the public subscription. It can be issued in different stages in accordance with demands and need. And some portion of it can behold unissued by the company.
The issued share capital of the company is the amount of share that is issued to the shareholder. In other words, authorised capital is the maximum amount of value of shares that a company can issue to the shareholders to raise money from the capital market. A company should mention the amount of authorized capital in its Memorandum of Association (MOA) under the heading of “Capital Clause”. A company can increase the Authorized Capital of the Company by seeking approval from all who has the voting rights and following necessary steps as required by law.
What is Paid-up Share Capital?
It is the amount in a company which is paid by the shareholders for the shares owned by them in the company. A Paid-up Capital is always not more than the Authorized Capital of the company and the Company cannot issue shares beyond the authorised share capital of the Company. Companies Amendment Act 2015 allows the companies to have no minimum requirement of paid-up capital of the Company. It can be as low as Rs. 1000. Minimum paid-up capital for Private Company was Rs 1 Lakh and Public Limited Company was Rs 5 Lakh before the amendment. Usually, companies raise capital by way of its paid-up capital either in the form of Initial Public Offering (IPO) or an additional issue of shares.
what are the differences?
The paid-up capital of a company should not be more than its authorized capital. On the other hand, a company is not authorized to issue shares beyond the authorized share capital.
A company can increase its authorized share capital in the future by following the law. Whereas, a company can increase its paid-up capital by way of issue of shares or private placement.
Authorized capital cannot be used in the calculation of net worth of a company, while paid-up capital is considered for net worth calculation.