Differences between Authorised Capital vs Paid-Up Capital

Authorised Capital is the maximum amount of share capital a company can issue (legal ceiling specified in MOA), while Paid-Up Capital is the actual money shareholders have paid to the company for issued shares (real cash received).

Think of authorised capital as your credit limit and paid-up capital as what you've actually spent. A company with ₹1 crore authorised capital may have only ₹10 lakh paid-up capital, meaning it has issued shares worth ₹10 lakh (face value) and can still issue ₹90 lakh more without increasing authorised capital.

Side-by-Side Comparison

Real-World Example to Illustrate This

ABC Technologies Private Limited:

At Incorporation (Year 0)

Authorised Capital: ₹50 lakh (5 lakh shares at ₹10 face value)

• Why ₹50L? Planning for seed and Series A without increasing
• Stamp duty paid (Karnataka): ₹50L × 0.2% = ₹10,000

Paid-Up Capital: ₹5 lakh (founders issued 50,000 shares, paid ₹5L)

• Real money: ₹5 lakh in company bank account
• Balance sheet shows: Share Capital (Paid-Up): ₹5,00,000

After Seed Round (Year 1)

Authorised Capital: ₹50 lakh (unchanged)

• No increase needed - still have capacity

Paid-Up Capital: ₹7 lakh

• Seed investment: ₹50 lakh raised
• New shares issued: 20,000 shares at ₹2,500 per share
• Face value portion: 20,000 × ₹10 = ₹2 lakh → Paid-up capital
• Premium: 20,000 × ₹2,490 = ₹49.8L → Securities Premium
• Total raised: ₹52 lakh, but paid-up capital only increased ₹2L

After Series A (Year 3)

Authorised Capital: ₹1 crore

• Increased from ₹50L - needed more capacity
• Additional stamp duty: ₹50L × 0.2% = ₹10,000

Paid-Up Capital: ₹15 lakh

• Series A investment: ₹5 crore raised
• New shares: 80,000 at ₹6,250 per share
• Paid-up increase: ₹8 lakh (face value portion)
• Balance sheet: Share Capital: ₹15L + Securities Premium: ₹5.42 crore

Key Insights

1. Why is Authorised Capital More than Paid-Up Capital?

The main reason for having a higher auth capital is to ensure the company has enough buffer for Future Growth: Companies set authorised capital 3-5x current paid-up to avoid frequent increases during future fundraises and issuances.

Example:

• Current paid-up: ₹10 lakh
• Set authorised: ₹50 lakh
• Benefit: Can raise 4 more rounds without MOA amendment

2. Paid-Up Capital Reflects the Real Value of the Company

For Investors: Paid-up capital (plus reserves) shows real money invested.

For Lenders: Banks assess loan capacity based on paid-up capital, not authorised capital.

Formula:

Company Net Worth = Paid-Up Capital + Securities Premium + Retained Earnings - Losses

3. Both Can Increase, But Differently

Increasing Authorised Capital:

• Board resolution → Shareholder special resolution → MOA amendment → ROC filing
• Timeline: 4-6 weeks
• Cost: Stamp duty on increase + compliance fees (₹10,000-₹25,000)

Increasing Paid-Up Capital:

• Issue new shares → Receive payment → File Form PAS-3
• Timeline: 1-2 weeks
• Cost: No stamp duty (already paid on authorised)

Common Scenarios Explained

Scenario 1: "We raised ₹1 crore but paid-up capital is only ₹5 lakh?"

Answer: Yes, this is normal.

Breakdown:

• Investment: ₹1 crore
• Share price: ₹2,000 per share
• Shares issued: 5,000
• Face value: ₹10
• Paid-up capital increase: 5,000 × ₹10 = ₹50,000 (not ₹1 crore!)
• Securities premium: 5,000 × ₹1,990 = ₹99.5 lakh

Key: Paid-up capital only reflects face value, not full investment.

Scenario 2: "Our authorised capital is too low, can we still raise funds?"

Answer: Yes, but you must increase authorised capital first.

Example:

• Authorised: ₹10 lakh (1 lakh shares)
• Issued: 80,000 shares
• Investor wants: 30,000 shares
• Problem: Only 20,000 shares available
• Solution: Increase authorised to ₹50 lakh before closing the round

Scenario 3: "Should we start with high authorised capital?"

Trade-off:

Option A - High Authorised (₹1 crore):

• ✅ Never need to increase for 5-7 years
• ❌ Pay ₹20,000 stamp duty upfront (Karnataka)

Option B - Low Authorised (₹10 lakh):

• ✅ Pay only ₹2,000 stamp duty now
• ❌ Need to increase twice (₹5,000 each time + compliance hassle)

Quick Decision Guide

When to Worry About Authorised Capital?

• ✅ Before every funding round (check if you have enough unissued shares)
• ✅ When planning ESOP pool expansion
• ✅ When investors ask: "What's your authorised capital?"

When to Worry About Paid-Up Capital?

• ✅ When calculating net worth
• ✅ When applying for loans (banks assess lending based on paid-up + reserves)
• ✅ When checking compliance thresholds (₹10 crore, ₹50 crore triggers)
• ✅ In every board meeting, annual report, and investor update

The Bottom Line

Authorised Capital = Permission to issue (legal paperwork)
Paid-Up Capital = Money in the bank (real cash)

Most Important Metric: Paid-up capital (reflects real financial strength)

For Founders: Set authorised capital high enough to avoid frequent increases, but know that paid-up capital is what actually matters for valuation, borrowing, and net worth.