Differences Between Authorized, Issued, and Paid-Up Capital with examples (2024)

FAQs

Differences Between Authorized, Issued, and Paid-Up Capital with examples? ›

Authorized capital is the maximum amount of capital a company can legally issue, representing its potential for raising funds. In contrast, paid-up capital is the actual amount of money a company has raised by issuing shares, showing the real investment made by shareholders.

Authorised Capital is the maximum worth of shares a company can issue. Paid-up Capital is the actual worth of shares a company receives. The net worth of a company is not determined by its authorised capital. The paid up capital is the net worth of the company.

The main difference between authorized capital and issued capital is that issued capital is a part of authorized capital. While authorized capital is the maximum amount that a company is allowed to raise from public. Issued capital is the part of authorised capital that is offered to public for subscription.

In summary, authorized capital is the maximum amount of capital that a company can raise, issued capital is the actual amount of capital that the company has raised, and paid-up capital is the amount of capital that the company has received from shareholders.

Example of Authorized Share Capital

Imagine a company with an authorized share capital of one million common shares at a par value of $1 each, for a total of $1 million. However, the actual issued capital of the company is only 100,000 shares, leaving 900,000 in the company's treasury available for future issuance.

Let's say a company issues 100 shares with a par value of ₹10 each. If the shares are sold for ₹15 each, then the paid up capital would be ₹1500. This means that investors paid ₹15 per share, which is ₹5 above the par value. Thus, it would consist of ₹100 in common stock and ₹1500 in excess.

Meaning of Authorised Capital

Known as the registered capital or nominal capital of the company, Authorised Capital is the maximum amount of share capital that a company is allowed to issue to its shareholders as per its constitutional documents.

It is the amount of money for which shares of the Company were issued to the shareholders and payment was made by the shareholders. At any point of time, paid-up capital will be less than or equal to authorised share capital and the Company cannot issue shares beyond the authorised share capital of the Company.

Key Takeaways. Share capital is the total of all funds raised by a company through the sale of equity to investors. Issued share capital is the value of shares actually held by investors. Subscribed share capital is the value of shares investors have promised to buy when they are released.

Paid-up capital is the amount of money received by the company when it sells its shares to the shareholders and investors directly through the primary market. In other words, it is the money that the investors give to the company on buying a share in that company.

What is the difference between paid up and issued? ›

ISSUED SHARE CAPITAL: This is the total amount of shares that have been given to shareholders. At this stage, they have not paid for the shares. The shares has just be issued to them. PAID-UP SHARE CAPITAL: This is the amount of issued share capital that has already been fully paid for.

They are “authorized” because they fall within the maximum number of shares a company can sell according to its corporate charter. They are “issued” because they have been sold.

Issued capital is that part of authorised capital which is offered to the public for subscription in the form of shares. Subscribed capital is that part of issued capital for which applications are received from the public. Called-up capital is that part of subscribed capital which has been called up by the company.

Who Decides the Amount of Authorised Capital? The first members of the company are the subscribers of the memorandum. These are the people who decide the amount of authorised capital amount at the time of incorporation of the company.

Under the Corporation Code, at least 25% of the amount subscribed must be paid-up and in no case be less than Five Thousand (P5,000.00) Pesos. The foregoing amount however shall not apply, if there is a law, rule or regulation of other regulatory agencies requiring a higher minimum paid-up capital.

Authorised Capital: Authorised capital is the amount of the share capital in which a company is allowed to issue its Memorandum of Association. The company is not supposed to raise more than the amount of capital as mentioned in the Memorandum of Association. It is also known as Registered or Nominal capital.

Shareholders cannot withdraw their share or any amount from the paid up capital. The money belongs to the company and must be used solely for business purposes. This means that shareholders cannot treat the company's paid up capital as a personal bank account and use the funds for their needs.

The formula to calculate authorized share capital is to multiply the number of authorized shares by the par value per share. This calculation gives you the nominal capital, combining the quantity of shares a company can issue and their individual value.

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 value of these shares is called-up share capital.