The authorised capital of $1 million could seem impressive to the misinformed and be misleading. This means that a company’s capital will not be measured against the par value of the shares but instead against the number of shares issued and the actual capital paid up (ie. issued capital). Moreover, the careful consideration of the nominal capital ensures that companies can align their growth plans, meet funding requirements, and comply with legal regulations.
Why was the concept of authorised capital abolished?
If you need help with authorized capital stock, you can post your legal need on UpCounsel’s marketplace. Lawyers on UpCounsel come from law schools such as Harvard Law and Yale Law and average 14 years of legal experience, including work with or on behalf of companies like Google, Menlo Ventures, and Airbnb. The initial authorized stock is typically simple common stock rather than the more complex dual class common stock that’s reserved for a company’s founders. If 10,000,000 shares of authorized stock are set as the initial amount, for example, not all of those shares will be distributed to the company’s founders immediately when the incorporation is established. Startups have to proceed cautiously by choosing an amount of authorized stock that accounts for the company’s short-term plans for issuing stock shares as well as maintaining a reserved stock option pool.
In the United States, companies wanting to “go public” must register with the Securities and Exchange Commission (SEC) before issuing an initial public offering (IPO). When a company issues its shares at a premium, the fund thus generated are shown in company’s balance sheet a bit differently. Another important aspect of Paid-Up Capital is that it is a critical component of the company’s equity structure.
Companies may not have fully paid for these shares, unlike paid-up capital. Because this way their proportionate claim on the company’s earnings (ownership) gets reduced. This is the reason why, before a company can issue more shares to public, it needs a majority approval of its existing shareholders. A company does not usually issue the full amount of its authorized share capital.
This means the company has the authority to issue shares worth ₹100 million, even if it has not yet issued the entire amount. It is a fundamental concept in corporate law and is established during the company’s incorporation process. The authorised capital is specified in the company’s governing documents and must comply with the jurisdiction’s legal requirements in which the company is registered. The ‘paid-up share capital’ of a company represents the money received from shareholders after issuing shares and receiving payment. It is essential to note that the number of issued or outstanding shares can be significantly lesser than the total authorized capital stock. This difference in the number of shares allows the company to raise funds in times difference between authorized capital and paid up capital of necessity rather than raising excess funds and underutilizing them.
If the company needs more capital than its current authorised capital then it needs to increase its authorised capital in order to raise further capital from its shareholders. The company can increase or decrease the authorised share capital based on its requirement. Explore the concept of Return on Investment (ROI), a critical tool in financial analysis. Learn how it measures investment efficiency, its application across various contexts, and its limitations. Gain insights into making informed investment decisions using ROI and other factors. However, raising both these capital limits requires the approval of the shareholders and also an intimation to the Registrar of Companies (RoC) in the prescribed forms.
Paid-up capital is the amount of money a company has been paid from shareholders in exchange for shares of its stock. Sometimes, a company may issue shares and not receive the full payment from the investor—usually large institutional investors. The authorised capital is the maximum amount of capital a company can issue, while paid-up capital is the amount actually paid by shareholders. Companies Amendment Act 2015 removed the minimum paid-up capital requirement.
What’s the Paid-Up Capital of a Company Mean?
The authorized capital and paid up capital of a company can be raised with the purpose to expand or upscale its investment limits. The raised capital will allow the company to issue more shares to new and existing shareholders. Listing rules might require specific shareholder approval in the case of publicly listed companies and their issued capital.
Paid-up Share Capital
- Knowing these terms and understanding interrelation is very important for Company Directors to plan their business and the funds required for business.
- Upon the company’s incorporation, paid up capital must be paid immediately and deposited into the company’s bank account.
- Therefore, to help Entrepreneurs understand the differences, we explain the differences between authorized and paid-up capital in detail.
- Companies that utilize large amounts of equity funding may carry lower amounts of debt than companies that do not.
- If the company has only issued 5 lakh shares, then the paid-up capital will be ₹50 lakhs.
There is no minimum issued capital requirement under Singapore law except for certain types of companies such as banks and insurance companies. Moreover, the abolition of authorised capital gave investors the opportunity to focus solely on a company’s issued capital. This is because a company could be incorporated with an authorised capital of $1 million divided into 1 million shares each with par value of $1 but only issued 2 shares.
Instead, some will be held in reserve by the company for possible future use. The number of companies incorporated has steadily increased in recent times. Apart from the daily business operations, one of the company’s core tasks is to raise capital to scale up the business. If you are a new Entrepreneur who has set up a company for the first time, it is very important to know the key differences between paid-up capital and authorized capital. For instance, if a company issues 10,000 shares of stock with a par value of $1 per share and an offer price of $5 per share, the paid-in capital would be $40,000 ($5 offer price – $1 par value x 10,000 shares).
Companies allow for more flexibility by arranging to issue more authorized shares than the amount required. Other names for authorized shares are authorized capital stock and authorized stock. Since it is the maximum capital limit, a company cannot exceed this limit while issuing or selling. In other words, a company is not allowed to issue/sell shares worth more than this amount. However, the authorised capital can be raised in the future by passing a resolution to that effect in the general meeting of shareholders. Issued capital is the aggregate value of the consideration received by a company for all the shares it has issued.