Authorized Capital and Paid up capital in a Private Limited Company

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Many entrepreneurs ask this questions what is authorized capital? How it is different from paid up capital. Let us understand in this post what exactly these terms mean.

Authorized Capital

Authorized capital as the word suggests means approved capital. Authorized capital is the maximum capital that one can raise as the capital of the company by issuing shares. In other words, it is the amount up to which a company can issue shares.

  1. Authorized capital is decided at beginning of incorporation of company.

  2. As the amount of authorized capital will increase, ROC fees will also increase simultaneously.

  3. Authorized capital can be changed at any point of time after incorporation of company.

  4. Authorized capital doesn’t mean that any person have to pay such amount to anyone.

  5. Authorized capital cannot be used in calculation of not worth of company.

  6. It is not mandatory for a company to issue shares upto authorized capital, one can issue shares less than authorized capital.

Paid-Up Capital

Paid up capital is nothing but just the part of authorized capital for which shares have been issued. Paid up capital can be fully paid up and partly paid up also. For example: company can issue shares of Rs. 10 of which 10 is paid by shareholder is fully paid up and if Rs.5 is paid out of Rs. 10 is known as partly paid up shares.

  1. Paid up capital is different from authorized capital.

  2. Paid up capital cannot be more than authorized capital. It can only be equal or less than to authorized capital.

  3. It is mandatory for the company to issue shares of amount equivalent to amount decided as paid up capital during incorporation, within 60 days of incorporation of the company.

  4. A company has both options to issue the shares and to buy back its shares subject to terms and conditions.

  5. Amount received by company as a paid up capital can be used for meeting business expenses of the company.

  6. Paid up capital is considered for calculation of net worth of the company.

Authorized and paid capital both are written in Balance sheet but authorized capital is not used for any computation of net worth. You can check fee related to authorized capital at MCA portal.