Have you ever heard the terms paid up capital and authorized capital? Whenever any subject matter experts are discussing any company, they always use the terms. Although you might be aware of the terms and their meaning, today we are sharing more details about the terms.
What does Authorized Capital mean?
Authorized Capital is the maximum amount of share capital, which any company can provide. Alternatively, we can say that this is the total amount that a company can raise from its shares.
Also, Nominal Capital or Registered Capital refer to share capital. The Share amount gets decided during the formation and incorporation of a company. In addition, the share amount can be raised later. But, only on the will of the shareholders.
Characteristics of Authorized Capital
- The decision of the amount occurs at the formation and incorporation duration of a company.
- Registration of Company fees increase with an increase in the capital.
- The Company’s Articles of Association and Memorandum of Association mentions the share amount.
- Share capital acts as the nominal value of every share and indicates the amount of capital that a company can raise from its shares.
- After the incorporation of a company, the amount can be changed at any time.
- Share capital cannot determine the net worth of a company.
- The share capital is not mandatory. Therefore, a company can provide shares with less value than the share capital.
What does Paid Up Capital mean?
The selling of shares by a company results to paid-up capital. Therefore, its simply the amount of capital that shareholders pays to a company, by buying shares. A company cannot sell more shares than the registered capital. Therefore, registered capital is higher than paid-up capital. The capital accepts partial or full payments.
Characteristics of Paid Up Capital
- The capital that shareholders have paid and a company have already received the payment.
- Always less than registered capital.
- Calculation of net worth of a company includes the capital.
- Used in paying business expenses of a company.
- Since a company must sell shares within 60 days after incorporation. The incorporation duration of a company decides the amount.
Facts about Paid Up Capital and Authorized Capital
- Registered capital includes paid up capital.
- Authorized capital can be increased at any time, but shareholders must authorize the increase.
- The balance sheet of a company indicates both capitals. However, the calculation of the net worth of a company only uses paid up capital.
- Value of registered capital is always higher than the paid up capital.
- Paid up capital stands for the amount of capital that a company raises by selling shares, while registered capital stands for the total value of shares that a company can provide to its shareholders.
Following these above explanation about the two capitals, we hope that we have answered all your questions. Company Vakil is one of the largest legal platform. Feel free to share the article with others. If you still have some questions, do not hesitate to reach us on our website.