Before discussing the difference between Authorized Capital and Paid-up Capital it is important to understand what is authorized and paid up capital.

Authorized Share Capital

It is the greatest measure of offer that an organization is approved to have by its MOA to issue to the investors i.e the maximum share capital that a company is permitted by its articles to issue to the shareholder. It isn’t important to issue the entire authorized share capital to the shareholders, some portion of it can remain un-issued.

The amount of capital that is issued to the investor is known as the issued share capital. However, authorized share capital is the one which is the maximum share capital that an organization can legitimately issue to the investors. The Authorized capital should be determined in the Memorandum of Association (MOA).

Approved capital is extensively partitioned into the:

  • Issued capital- The measure of capital (out of buying in capital) which has been issued by the organization to the supporters and in this way are presently investors.
  • Paid up capital- It is the measure of capital (out of called-up capital) against which the organization has gotten the installments from the investors up until now.
  • Uncalled capital- In which is the sum unpaid by the investors for the offer that they have purchased.

Paid-up Share Capital

It is the sum of an organization which is financed by the investors. A paid-up capital can never be in excess of a maximum approved capital i.e authorized share capital and that is one of the major difference between Authorized Capital and Paid-up Capital. An organization raises its financing with the assistance of the paid-up capital. It can be either an Initial Public Offering(IPO) or an extra issue. The organizations’ demonstration 2013 required all private constrained organizations to have a base paid up capital of 1 lakh and all open restricted organizations to have a base paid up capital of 5 lakh. The Companies Amendment, 2015 expelled such least paid up capital. Presently you can pick the paid-up capital according to your desire.

  • Any time of time, paid-up capital will be not exactly or equivalent to approved offer capital. The Company can’t issue shares past the approved offer capital of the Company.
  • With the Companies Amendment Act 2015, there is no base prerequisite of paid-up capital of the Company. That implies currently Company can be shaped with even Rs.1000 as paid up capital.

Related: Difference between Equity and Preference Share

Difference between Authorized Capital and Paid-up Capital

Some major points of difference between Authorized Capital and Paid-up Capital are :

  • Approved offer capital is the most extreme estimation of the offer that an organization can issue to the investors. Paid up capital is the measure of cash which is really paid by the investors to the organization.
  • The approved capital is as far as possible on the number of offers. Paid up capital must be not as much as approved capital i.e. it must be inside the cutoff set by approved capital.
  • The approved capital must be expressed in the Capital provision of the MOA of the organization.
  • The paid-up capital is additionally required to be expressed in the capital condition of MOA.
  • On the off chance that the organization needs to build the approved capital than the method as given above by the organization’s demonstration must be taken after.
  • Paid up capital can be expanded by the issue of offers or private placement.

Conclusion

Capital means the money or sum of money which is invested in a company to carry on its activities and business. The capital of a company is share capital. A company’s capital is mainly received from the shareholders i.e. from shares and debentures. As the company is a legal entity it cannot generate money for investing it in the business i.e. capital. So it is collected from the shareholder by the way of issuing shares to them. During the process of company registration, the capital of each partner should be decided and recorded in the articles.

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