Startup

Differences between Authorised Capital vs Paid-Up Capital

May 5, 2026 · 4 min read

Authorised Capital is the maximum amount of share capital a company can issue (legal ceiling specified in MOA), while Paid-Up Capital is the actual money shareholders have paid to the company for issued shares (real cash received).

Think of authorised capital as your credit limit and paid-up capital as what you've actually spent. A company with ₹1 crore authorised capital may have only ₹10 lakh paid-up capital, meaning it has issued shares worth ₹10 lakh (face value) and can still issue ₹90 lakh more without increasing authorised capital.

Side-by-Side Comparison

Aspect	Authorised Capital	Paid-Up Capital
Definition	Maximum share capital company can issue	Actual money received from shareholders
Nature	Legal limit (theoretical)	Real cash (actual)
Specified In	Memorandum of Association (Clause V)	Balance sheet under Shareholders' Equity
Example	₹1 crore (can issue up to 10 lakh shares at ₹10)	₹25 lakh (issued 2.5 lakh shares, received ₹25L)
Can Exceed?	No - cannot issue beyond authorised	N/A - paid-up is always ≤ authorised
Stamp Duty	Yes - paid at incorporation/increase	No - only on authorised capital
Balance Sheet	No - disclosed in notes only	Yes - shown as "Share Capital"
Affects Net Worth?	No	Yes - directly increases net worth
How to Increase	MOA amendment + ROC filing + stamp duty	Issue new shares + receive payment
Typical Amount	3-5x paid-up capital (buffer for future)	Actual capital raised to date

Real-World Example to Illustrate This

ABC Technologies Private Limited:

At Incorporation (Year 0)

Authorised Capital: ₹50 lakh (5 lakh shares at ₹10 face value)

Why ₹50L? Planning for seed and Series A without increasing
Stamp duty paid (Karnataka): ₹50L × 0.2% = ₹10,000

Paid-Up Capital: ₹5 lakh (founders issued 50,000 shares, paid ₹5L)

Real money: ₹5 lakh in company bank account
Balance sheet shows: Share Capital (Paid-Up): ₹5,00,000

After Seed Round (Year 1)

Authorised Capital: ₹50 lakh (unchanged)

No increase needed - still have capacity

Paid-Up Capital: ₹7 lakh

Seed investment: ₹50 lakh raised
New shares issued: 20,000 shares at ₹2,500 per share
Face value portion: 20,000 × ₹10 = ₹2 lakh → Paid-up capital
Premium: 20,000 × ₹2,490 = ₹49.8L → Securities Premium
Total raised: ₹52 lakh, but paid-up capital only increased ₹2L

After Series A (Year 3)

Authorised Capital: ₹1 crore

Increased from ₹50L - needed more capacity
Additional stamp duty: ₹50L × 0.2% = ₹10,000

Paid-Up Capital: ₹15 lakh

Series A investment: ₹5 crore raised
New shares: 80,000 at ₹6,250 per share
Paid-up increase: ₹8 lakh (face value portion)
Balance sheet: Share Capital: ₹15L + Securities Premium: ₹5.42 crore

Key Insights

1. Why is Authorised Capital More than Paid-Up Capital?

The main reason for having a higher auth capital is to ensure the company has enough buffer for Future Growth: Companies set authorised capital 3-5x current paid-up to avoid frequent increases during future fundraises and issuances.

Example:

Current paid-up: ₹10 lakh
Set authorised: ₹50 lakh
Benefit: Can raise 4 more rounds without MOA amendment

2. Paid-Up Capital Reflects the Real Value of the Company

For Investors: Paid-up capital (plus reserves) shows real money invested.

For Lenders: Banks assess loan capacity based on paid-up capital, not authorised capital.

Formula:

Company Net Worth = Paid-Up Capital + Securities Premium + Retained Earnings - Losses

3. Both Can Increase, But Differently

Increasing Authorised Capital:

Board resolution → Shareholder special resolution → MOA amendment → ROC filing
Timeline: 4-6 weeks
Cost: Stamp duty on increase + compliance fees (₹10,000-₹25,000)

Increasing Paid-Up Capital:

Issue new shares → Receive payment → File Form PAS-3
Timeline: 1-2 weeks
Cost: No stamp duty (already paid on authorised)

Common Scenarios Explained

Scenario 1: "We raised ₹1 crore but paid-up capital is only ₹5 lakh?"

Answer: Yes, this is normal.

Breakdown:

Investment: ₹1 crore
Share price: ₹2,000 per share
Shares issued: 5,000
Face value: ₹10
Paid-up capital increase: 5,000 × ₹10 = ₹50,000 (not ₹1 crore!)
Securities premium: 5,000 × ₹1,990 = ₹99.5 lakh

Key: Paid-up capital only reflects face value, not full investment.

Scenario 2: "Our authorised capital is too low, can we still raise funds?"

Answer: Yes, but you must increase authorised capital first.

Example:

Authorised: ₹10 lakh (1 lakh shares)
Issued: 80,000 shares
Investor wants: 30,000 shares
Problem: Only 20,000 shares available
Solution: Increase authorised to ₹50 lakh before closing the round

Scenario 3: "Should we start with high authorised capital?"

Trade-off:

Option A - High Authorised (₹1 crore):

✅ Never need to increase for 5-7 years
❌ Pay ₹20,000 stamp duty upfront (Karnataka)

Option B - Low Authorised (₹10 lakh):

✅ Pay only ₹2,000 stamp duty now
❌ Need to increase twice (₹5,000 each time + compliance hassle)

Quick Decision Guide

When to Worry About Authorised Capital?

✅ Before every funding round (check if you have enough unissued shares)
✅ When planning ESOP pool expansion
✅ When investors ask: "What's your authorised capital?"

When to Worry About Paid-Up Capital?

✅ When calculating net worth
✅ When applying for loans (banks assess lending based on paid-up + reserves)
✅ When checking compliance thresholds (₹10 crore, ₹50 crore triggers)
✅ In every board meeting, annual report, and investor update

The Bottom Line

Authorised Capital = Permission to issue (legal paperwork)
Paid-Up Capital = Money in the bank (real cash)

Most Important Metric: Paid-up capital (reflects real financial strength)

For Founders: Set authorised capital high enough to avoid frequent increases, but know that paid-up capital is what actually matters for valuation, borrowing, and net worth.