The Companies Amendment Act of 2015 removed the necessity for a minimum paid-up capital for private companies, although the requirement for approved/authorised share capital remains.

We'll go through the distinction between authorised and paid-up share capital in-depth in this article. The capital structure of any corporation would be separated into two sections:

There are two types of share capital:

• authorised share capital 
• paid-up share capital.

What is meant by Authorised Capital?

The authorised capital or authorised share is the highest amount of capital that the company's shareholders are allowed to invest and hold a stake in. Under the Capital Clause of the Company's Memorandum of Association (MOA), the maximum permitted amount is stated. However, it is possible that some of the authorised share capital will remain unissued. The issued number of share capital refers to the number of shares that have been issued to investors.

It is often referred to as the company's nominal capital or registered capital. The public subscription does not need a corporation to issue all of its authorised capital. It may be issued in response to the company's requirements and desires. The MOA's authorised capital can be increased or lowered in the future by following the procedures outlined in the Companies Act of 2013, like-

• A company's Articles of Association (AoA) should provide for a decrease or increase in authorised share, and if such a provision does not exist, the AoA should be modified in accordance with Section 14 of the Companies Act.
• If the authorised capital is raised or decreased, a notification should be sent to the company's Directors, Members, and Auditors, requesting a meeting with the Board of Directors & a public meeting with the shareholders to get their permission.
• The government notifies the company's registrar with a copy of the resolution, a notice of General Meeting (GM), and an updated MOA in Form SH-7 within thirty days of passing the resolution.

What is a Paid-up Capital?

The sum for which shareholders are granted shares is known as paid-up share capital. Following that, the stockholders complete their payments. This sum is also regarded as the real funds received by the firm as a result of being stated on the stock issue. This sum is usually raised as part of an Initial Public Offering and it becomes part of the company's finances. However, the company's paid-up capital will never equal its permitted capital.

A private limited company used to have a minimum paid-up capital of 1 lakh, while a public company had to have a minimum paid-up capital of 5 lakh before the 2015 amendment to the Company Act. They did, however, eliminate the requirement following the change. It is also up to the corporation to line up its paid-up capital. It might cost as little as Rs 5,000.

Difference between Authorised Capital and Paid-up Capital of a Company

What are the benefits of an increasing Authorised Capital?

A private limited company may have several benefits of an increasing Authorised Share Capital. They are:-

Business Growth

With the additional cash from the sale of stocks, the company can focus on building its business without having to take out any loans or other traditional financing.

Assists in the acquisition of additional funds

If a company wants to obtain more money from outside sources, it must first expand its authorised capital.

Increased shareholder remuneration

With more cash on hand, the company may now increase its shareholder compensation. Owners, partners, and so on.

Additional Thoughts

There are a couple more ideas. You should also be aware of the following, notwithstanding their lesser importance: Capital that has been issued and capital that has been called up.

Issued capital: This is capital that a company has issued to its shareholders, whether or not they have been compensated for it.

Called-up capital: refers to capital that has been issued but not yet paid up.

Conclusion

Companies typically issue stock or equity to fund expansion, repay debts, and other purposes. The capital raised by the firm in return for the shares issued to the shareholders is referred to as share capital. Private limited businesses, one-person firms, and public limited companies must publish their capital structure at all times and even when it changes, according to the Registrar of Companies.

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