If you have ever read a company's incorporation documents or balance sheet, you have likely come across terms like authorized capital, paid-up capital, and subscribed capital. These terms are often used interchangeably in casual conversations, but they carry very different legal and financial meanings. Understanding the authorized vs paid up capital distinction is fundamental for anyone incorporating a company, raising funds, issuing shares, or planning a capital restructuring in India.
Whether you are a startup founder deciding how much capital to declare during registration, an accountant preparing financial statements, or a company planning to bring in new investors, this guide explains the complete share capital structure under the Companies Act, 2013. It covers definitions, practical examples, key differences, and the procedure for increasing authorized capital.
What is Authorized Capital
Authorized capital, also known as nominal capital or registered capital, is the maximum amount of share capital that a company is legally permitted to issue to its shareholders. It is declared in the Memorandum of Association (MOA) at the time of incorporation and represents the upper ceiling of the company's equity fundraising capacity.
For example, if a company is incorporated with an authorized capital of Rs. 10 lakh divided into 1,00,000 equity shares of Rs. 10 each, it means the company can issue shares worth up to Rs. 10 lakh. It does not mean the company has actually raised Rs. 10 lakh. It simply sets the boundary. The company pays stamp duty and ROC fees based on this declared amount, which is why most startups begin with a modest authorized capital and increase it later as business needs grow.
The authorized capital figure appears in the Capital Clause of the MOA. It is also a key consideration during private limited company registration, where founders must decide upfront how much authorized capital to declare. Choosing too low a figure may require a costly increase later, while declaring an unnecessarily high amount inflates initial registration costs.
Paid-Up Capital Meaning in India
The paid up capital meaning India refers to the actual amount of money that shareholders have paid to the company against the shares allotted to them. It represents real money that has entered the company's bank account and is available for business operations.
To continue the earlier example, if the company with Rs. 10 lakh authorized capital issues 50,000 shares at Rs. 10 each and the shareholders pay the full amount, the paid-up capital is Rs. 5 lakh. The remaining Rs. 5 lakh worth of shares remain unissued and can be allotted in the future without needing to increase the authorized capital.
Paid-up capital is the figure that reflects the company's actual equity base. It appears on the balance sheet under shareholders' equity and is closely watched by lenders, investors, and regulators. A higher paid-up capital signals financial commitment from the promoters and strengthens the company's creditworthiness. For companies planning to raise equity through new share allotments, the issue of shares process outlines how shares move from authorized to subscribed to paid-up status.
Share Capital Structure Explained: The Complete Hierarchy
The share capital structure explained in simple terms follows a clear hierarchy. Each layer represents a different stage in the life cycle of a company's equity capital.
| Capital Type | What It Means |
| Authorized Capital | Maximum share capital a company can issue, as declared in the MOA |
| Issued Capital | The portion of authorized capital that the company has actually offered to investors through share allotment |
| Subscribed Capital | The portion of issued capital that investors have agreed to purchase by subscribing to the shares |
| Called-Up Capital | The portion of subscribed capital that the company has asked shareholders to pay |
| Paid-Up Capital | The actual amount shareholders have paid against the called-up capital |
Here is a practical illustration. A company has an authorized capital of Rs. 25 lakh. It issues shares worth Rs. 15 lakh (issued capital). Investors subscribe to Rs. 12 lakh (subscribed capital). The company calls Rs. 10 lakh for payment (called-up capital). Shareholders actually pay Rs. 9 lakh (paid-up capital). The remaining Rs. 1 lakh that shareholders owe is classified as calls in arrears.
Authorized vs Paid-Up Capital: Key Differences
While both terms fall under the umbrella of share capital, they differ on several fundamental parameters. Here is a side-by-side comparison.
| Parameter | Authorized Capital | Paid-Up Capital |
| Definition | Maximum capital a company can issue | Actual capital paid by shareholders |
| Declared In | Memorandum of Association (Capital Clause) | Balance sheet under shareholders' equity |
| Nature | Notional, a ceiling or limit | Real, represents actual funds received |
| Decided At | Time of incorporation | After share allotment and payment |
| Can It Change | Yes, through a formal increase procedure | Yes, with each new allotment or buyback |
| ROC Fees | Stamp duty and fees paid on this amount | No separate fees on paid-up capital |
| Relevance | Determines future fundraising capacity | Reflects financial strength and promoter commitment |
| Relationship | Always equal to or greater than paid-up capital | Always equal to or less than authorized capital |
The core takeaway is straightforward. Authorized capital is the potential. Paid-up capital is the reality. A company cannot issue shares beyond its authorized capital, and paid-up capital cannot exceed authorized capital at any point.
How to Increase Authorized Capital: Procedure Under Companies Act
As companies grow, the need to raise additional equity often outpaces the authorized capital declared at the time of incorporation. The increase authorized capital procedure under the Companies Act, 2013 involves several regulatory steps.
Step 1: Check the Articles of Association
Verify that the company's AOA authorises the alteration of share capital. If the AOA does not contain such a provision, it must be amended first through a special resolution.
Step 2: Convene a Board Meeting
The board of directors must hold a meeting and pass a resolution recommending the increase in authorized capital. The resolution should specify the proposed new authorized capital figure and the number and denomination of additional shares.
Step 3: Pass an Ordinary Resolution at a General Meeting
An Extraordinary General Meeting (EGM) or Annual General Meeting (AGM) must be called where shareholders pass an ordinary resolution approving the increase. Notice of the meeting must be sent to all shareholders with a clear explanation of the proposal.
Step 4: File Form SH-7 with the ROC
Within 30 days of passing the resolution, the company must file Form SH-7 (Notice of Alteration of Share Capital) with the Registrar of Companies. The form must be accompanied by a copy of the resolution, the altered MOA, and payment of the applicable ROC fees. The fees are calculated based on the amount of increase. For a detailed walkthrough and professional assistance with this filing, you can refer to the change in authorised capital service provided by Patron Accounting.
Step 5: Update Company Records
Once the ROC processes the filing, update the MOA, AOA, and all internal records to reflect the new authorized capital. The updated capital structure should also be reflected in the company's subsequent annual return and financial statements.
Why Understanding Capital Structure Matters for Your Business
The distinction between authorized and paid-up capital has practical consequences at every stage of a company's lifecycle. During incorporation, the authorized capital determines your initial registration costs. During fundraising, it sets the limit on how many shares you can issue before needing a costly increase. During due diligence, investors scrutinise the paid-up capital to assess how much real money the promoters have committed.
For public companies, the paid-up capital threshold also triggers several compliance requirements, including mandatory appointment of a Company Secretary and the need for a secretarial audit. If you are evaluating the transition to a public structure, the public company registration guide explains how capital requirements differ for public entities.
Startups planning to raise angel or venture capital funding should set their authorized capital slightly above their immediate needs. This creates headroom for issuing shares to new investors without triggering an authorized capital increase each time. A well-planned capital structure reduces compliance costs and speeds up future funding rounds.
Conclusion
Understanding the authorized vs paid up capital distinction is not just a matter of accounting terminology. It directly affects your company's registration costs, fundraising capacity, compliance obligations, and credibility with stakeholders. Authorized capital sets the ceiling, while paid-up capital reflects the actual financial commitment of your shareholders.
Whether you are incorporating a new company, planning a fundraise, or restructuring your equity, getting the capital structure right from the beginning saves time, money, and regulatory complications. If you need professional guidance on setting up or altering your capital structure, working with an experienced CA or CS ensures accuracy and full compliance with the Companies Act, 2013.
