What is the difference between Authorized  and Paid Up Capital?

A private limited company in India will have its share capital classified under various types in the financial statements. In this article we explain the difference between authorized and paid-up capital.

Assets can be purchased from “Paid up Capital”, as “Authorized Capital” is only a notional figure. Paid up Capital is the actual money received by the company from shareholders, whereas Authorized Capital is the maximum limit of paid up capital that a company can receive from its shareholders. A company needs to register its Authorized Capital with the authorities in advance. For example company XYZ Private Limited has registered Authorized capital as INR 1 Million. Company can receive Paid Up Capital from its shareholder up to or equal to INR 1 Million. If it needs to receive more Paid Up Capital from shareholders then it has to first increase its limit of Authorized Capital by following due process with authority. It is possible to use assets for capital; but assets can be booked only as Capital in case ROC gives prior approval. The valuation rules of such assets need to be verified thoroughly.

Paid Up Capital can be paid in different tranches based on business requirement. Each receipt of Paid Up Capital requires to follow certain capitalization process and each time it involves a cost of INR 30,000/- approximately. Therefore a reasonable gap between each transfer of paid up capital is suggested to avoid additional expense of capitalization.

Increasing Authorised Capital takes about 15 days of time and a fee is paid to government based on the amount of Authorised Capital. After receipt of Paid Up Capital it takes 15 to 20 days to complete the capitalisation process. Each capitalisation requires expenses of approximately INR 30,000/- in terms of obtaining compliance certificate, valuation certificate and certification fee. In addition a variable fee of 0.1% of paid up capital amount + INR 10,000 would be required for stamping of share certificates. M+V offers one share allotment per year as part of the service package of M+V and charges additional service fees only on more allotments.

M+V’s Corporate Services team can help you with all your capitalization needs.