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What is the difference between authorized capital and paid up capital?

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posted Apr 6, 2016 by Anita Yadav

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Authorized Capital

It is the maximum amount of share that a company is authorized to have by its constitutional documents to issue to the shareholders. It is not necessary to issue the whole amount of the authorized capital, part of it can remain unissued. The amount of share that is issued to the shareholder is called the issued share capital of the company. To put in other words, an authorized capital is the one which is the maximum amount of value of securities that a company can legally issue to the shareholders. The Authorized capital needs to be specified in the Memorandum of Association(MOA).

Authorized capital is broadly divided into the:

Issued capital, which is the per value of the share that is actually issued.
Paid up capital, which is the money received from the shareholders in exchange of the shares.
Uncalled capital, which is the amount unpaid by the shareholders for the share that they have bought.

Paid Up Capital

It is the amount in a company which is funded by the shareholders. A paid up capital can never be more than an authorized capital. This capital is a reflection of how an equity funding is needed for a company to grow in the market. A company raises its financing with the help of the paid-up capital, it can be either in the form of Initial Public Offering(IPO) or an additional issue.

Difference between Authorized capital & Paid-up capital

A paid up capital is included in the authorized capital, the definition itself is a difference. A Private Limited Company after its incorporation decides the amount of authorized capital for the company and the value of shares that they will receive in return to their investment in the company. It is the maximum value of shares that a company can allot to its shareholders. Whereas, a Paid up Capital is the amount of money for which the shares were issued to the shareholder.
A paid up capital needs to be less than the authorized capital.
The authorized capital can be increased anytime with the prior permission of the shareholders.

answer Jul 19 by Rupali Thakur
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