Difference Between Authorized Capital and Paid-up Capital

Definition of Authorized Capital and Paid-up Capital

Authorized capital is the maximum amount of capital for which a company can issue shares to the shareholders, while Paid-up capital is the amount received from shareholders for the shares held by them. Authorized capital is always greater than paid-up capital.

Some of the features of authorized capital and paid-up capital and see how the two are different.

Features or Characteristics of Authorized Capital

The features of authorized capital and paid-up capital are listed below:

1. Authorized capital and paid-up capital is used to describe a company’s capital.
2. A company does not generally issue the total amount of its authorized capital shares as some of them are held back for future use.
3. It consists of all the shares of every type that the company can issue.
4. A company cannot increase its authorized capital without the approval of shareholders.
5. It is to be mentioned in the Capital Clause of MoA (Memorandum of Association).

Features or characteristics of paid-up capital

1. There is no minimum amount for the paid-up capital of a company.
2. Paid-up Capital is equity which is permanent capital.
3. Paid- Up Capital is often referred to as equity capital.
4. On the balance sheet Paid-Up Capital comes under stockholder’s equity.
5. Paid-up capital is less or equal to the authorized capital.
6. Authorized capital and paid-up capital is also mentioned in the capital clause of MoA (Memorandum of Association).

Applications of Authorized Capital and Paid-up Capital

Authorized capital and paid-up capital : Authorized capital is the maximum amount for which a company can issue its shares. Paid-up capital is the actual amount received from shareholders.

Implementations of Authorized Capital and Paid-up Capital

• The company’s constitutional documents Capital –Authorized capital and hence need not be calculated. It is the capital that is allocated at the starting of the company.
• Paid-Up Capital- The following steps are involved in calculations of Paid-up Capital-
  • Find out the number of equity shares issued by the company and the portion of the face value of the share called up.
  • Multiply them to calculate the paid-up capital of the company.
  • Paid-up capital= No. of Equity Share Issued * called up the value of the share.

Difference between authorized capital vs. paid-up capital

• Maximum capital or shares that can be issued to the shareholders is known as authorized capital whereas; a Paid-up Share Capital is the amount of money received from the shareholders for the shares allocated to them.
• The Authorized Share Capital should always be higher than Paid-Up Share Capital.
• The Authorized Share Capital can be increased with the permission of the shareholders, but for paid-up, the capital company has to raise equity from the market or internal sources
• The Authorized Share Capital should be made public while this is generally not a restriction in Paid-Up Capital.

Usage of Authorized Capital and Paid-up Capital

To conclude, authorized capital comprises the total shares that any company can issue, whereas paid-up capital comprises the amount received by the company based on the shares issued. A company can change its authorized capital only by meeting specific requirements stated and by the shareholders’ approval, whereas the primary market drives paid-up capital. At any point in time, the company’s paid-up capital cannot exceed its authorized capital.