Authorized Capital Vs Paid Up Capital
Companies issue stock to raise funds for a variety of reasons, including expanding their business, paying off debts, and so on. Regardless of the size or kind of business, every firm must classify its share capital in the financial statement under numerous categories. Authorized Share Capital Vs Paid Up Share Capital and Subscribed Capital.
A company’s capital structure is divided into two categories: approved share capital and paid-up share capital. Let’s look at the definitions of these two words and how they differ from one another.
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What does it mean to have authorized capital?
The maximum amount of capital a corporation is allowed to raise from its shareholders by issuing shares is known as authorized capital. A corporation is not required to issue all of its authorized capital in the public subscription. It may decide to issue capital in phases, depending on the needs and demand.
In its Memorandum of Association, a corporation must state the amount of allowed capital (MOA).
What does it mean to have paid-up share capital?
The amount paid by shareholders for the company’s shares is known as paid-up capital. It is the real amount of money received by the corporation as a result of the stock issuance. A firm often raises funds by issuing new share capital, which becomes part of the company’s paid-up capital.
The Companies Act of 2013, which was amended in 2013, no longer requires a private or public company to have a minimum paid-up capital of 1 lakh or 5 lakh, respectively. They have complete freedom in selecting their paid-up capital, which may be as low as Rs. 20.
Authorized vs. Paid-up: What’s the Difference?
· Capital
The maximum value of the shares that a corporation is legally allowed to issue to its shareholders is known as authorized capital. Paid-up capital, on the other hand, is the amount paid to the corporation by its shareholders.
The paid-up capital of a business can never be greater than its authorized capital, although it can be equal to it at any time. A firm, on the other hand, is not permitted to issue shares in excess of its authorized share capital.
A company’s authorized share capital might be increased in the future by following the method outlined in the Companies Act of 2013. A company’s paid-up capital can be increased by issuing shares to existing shareholders or by making a private placement to third parties.
Authorized capital is not taken into account when calculating a company’s net value; nevertheless, paid-up capital is taken into account.
What is the process for boosting authorized capital?
The corporation must first acquire approval from its Board of Directors before increasing its authorized capital. Additionally, the corporation must schedule a general meeting at which the amount to be raised will be chosen by shareholders voting on an ordinary resolution. In addition, the corporation must file Form SH-7 on the Ministry of Corporate Affairs’ online portal (MCA). This must be completed within 30 days of the resolution’s passage.
· Increased Authorized Capital Benefits for Business Growth
The firm can focus on its business expansion without borrowing money or receiving finances from other traditional sources thanks to the additional revenue gained from stock sales.
· Shareholders and others will receive additional cash.
The firm may give greater pay to its investors, shareholders, partners, senior management, workers enrolled in equity ownership plans, founders, and owners with increased cash inflow.
· Borrowing Capacity is Increased
The company’s overall net worth improves when more share capital is added. As a result, the company’s borrowing capability is increased.
· Increases the amount of capital in the company
A corporation can only increase its share capital above what is specified in its MOA by using authorized capital. As a result, raising permitted capital improves the company’s entire share capital. Authorized Share Capital Vs Paid Up Share Capital and Subscribed Capital.
