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Authorized Capital and Paid-up Capital | Company Vakil

The Registrar of Companies (RoC)

The ROR claims private limited companies, one-person companies, and public limited companies to declare their capital structure at all times after the company registration. At any point after the company registration, the Register of Companies can ask the company to produce its capital structure (including authorized and paid-up capital) and the company is obligated to do the same, no questions asked. This is done to ensure that no illegal activities such as money laundering, devolving shell companies, etc are carried out within the company. Also, it is done to keep a track of the money invested in the company to its shareholders and other concerned members/authorities.

What is included in the capital structure of the company?

A company’s capital structure includes all kinds of capital that the company is working with at the given point in time. It includes :

  • Authorized Capital
  • Paid up capital
  • Issued capital
  • Uncalled capital

What is the authorized capital of a company?

It is the maximum amount of shares that a company is authorized to have by its constitutional documents to issue to the shareholders. It is not mandatory to issue the entire amount of the authorized capital, a portion of it can remain un issued. The shares that are actually issued to the shareholder’s amount to issued capital.

If talked about briefly, an authorized capital is the maximum amount of value of securities that a company is allowed to legally issue to its shareholders. It is specified in the MOUs itself. 

Issued capital is a part of the authorized capital that is actually made us of. It can be less than or equal to the authorized capital. However, it cannot exceed the authorized capital.

 

For example :

If ABC Private Limited Company has an authorized capital of Rs.20 lakh, it means that ABC Private Limited Company can issue shares worth up to Rs.20 lakhs to its investors. ABC Private Limited Company cannot issue shares worth Rs.21 lakhs to its investors. However, the Company can still issue shares worth only Rs.10 lakh to its investors – as the company has not issued shares in excess of the authorized capital.

After company registration, Authorized capital can be broadly divided into the following categories :

Issued capital: It is the value of the share that is actually issued by the company to the shareholders.

Paid up capital: It is the capital that is received from the shareholders in exchange of the shares.

Uncalled capital: It is the amount that is unpaid by the shareholders for the shares that they have bought.

For example :

If ABC Private Limited Company has an authorized capital of Rs.20 lakh, it means that ABC Private Limited Company can issue shares worth up to Rs.20 lakhs to its investors. ABC Private Limited Company cannot issue shares worth Rs.21 lakhs to its investors. However, the Company can still issue shares worth only Rs.10 lakh to its investors – as the company has not issued shares in excess of the authorized capital.

For private limited companies and OPCs, the maximum authorized capital is Rs. 1 lakh.

For public limited companies, the maximum authorized capital is Rs. 5 lakh.

Important things to know about authorized capital :

The authorized capital is decided at the time of incorporation of the company.

There is an increase in the ROC fee as the authorized capital increases.

The amount of the authorized capital can be changed at any point in time after the incorporation of the company and after the company registration.

However, this capital is not liable to be counted at the time of determining the net worth of the company. The related fees of such capital are displayed on the MCA website.

A fee of Rs 5,000 is charged by the Ministry of Corporate Affairs (MCA) for allotting the minimum authorized capital of Rs.1 lakh for a private limited company. In case the private limited company requires additional authorized capital, a fee for the additional authorized capital is charged as follows:

 

If a private limited company wishes to issue shares that commensurates the vale of the investment, it has to pay the Ministry of Corporate affairs a fee for increasing the authorized share capital of the company.

Start-ups usually tend to do the company registration process with a minimum authorized capital because of the ROC fees attached to the same. However, every change in the amount must be duly followed by notifying the MCA and paying the ROC fees.

What is paid-up capital?

Paid up capital is the amount of money that is actually paid by the shareholders to the company. It is the amount of money that corresponds to the number of shares issued to the shareholders. At any given point of time, paid-up capital will be less than or equal to the authorized share capital of the company. The company cannot issue shares beyond the authorized share capital of the company. Uncalled capital is the capital that is unpaid by the shareholders for the share that they have bought.

It was mandated by The Companies Act, 2013 for all the Private Limited Companies have a minimum paid up capital of Rs.1 lakh. This meant that Rs.1 lakh worth of money had to be invested in the company by purchase of the company shares by the shareholders to start a business. However, the Companies Amendment Act, 2015 relaxed the minimum requirement for paid-up capital. Therefore, there is now no requirement for any minimum capital to be invested to start a private limited company.

In case of any change in the authorized and paid up share capital, Registrar of Companies (ROC) needs to be updated with. The details will be recorded in the Companies Master Data of MCA and will be available for the public to view the data.

In order to avail the benefits of authorized capital, it is mandatory for a company to be done with the process of company registration. At Compnay Vakil, a team of experienced lawyers can assist and guide you at each step making the process easier to comply with.

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