Authorized Capital and Paid Up Capital
November 19, 2019
One of the most important decisions while registering a new company is deciding the Capital of the Company. For taking an informed decision regarding the capital of the company, one should understand two basic concepts relating to capital i.e. Authorized Capital and Paid Up Capital.
The following points of differentiation will give us a better understanding of the two concepts-
- Authorized Capital is the maximum amount of Share Capital 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 un-issued.
- The amount of Share Capital that is issued to the shareholder and in exchange of which money is received from the shareholders is called the Paid Up Capital of the company.
Increase of Share Capital:
- A Company can increase its Paid Up Capital by issuing further shares. However the Paid Up Capital cannot be more than the Authorized Capital.
- A company can increase its Authorized Capital by altering its Memorandum of Association and increasing the Capital limit stated therein.
- In view of the above, if a Company wants to increase its Paid Up Capital to an amount which is exceeding its Authorized Capital, then first the Authorized Capital has to be increased accordingly.
Payment of Stamp duty on Share Capital:
- Stamp Duty is paid on the Authorized Share Capital of the Company.
- Stamp duty is payable at the time of Company Incorporation and also at the time of increase in Authorized Capital.
- Stamp duty is not required to be paid on the increase of Paid Up Capital of the company.
- Rate of stamp duty on Authorized Capital varies from state to state.
- Change in the Authorized Capital of the company requires filing of e-form SH7 within 30 days from the date of change.
- Change in Paid Up Capital of the company requires filing of e-form PAS 3 within 30 days from the date of allotment of shares.
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