Difference Between Authorised and Paid-up Capital Explained

Difference Between Authorised and Paid-up Capital Explained

If you have ever filled out a company incorporation form, you have probably paused at two fields that sound almost identical - "authorised capital" and "paid-up capital." Many first-time founders assume they mean the same thing, or worse, assume that whatever number they enter is money they need to have ready in the bank. Neither assumption is correct, and misunderstanding this distinction can lead to unnecessary costs, compliance headaches, or an awkward call from your company secretary later.

Understanding the difference between authorised and paid-up capital is one of those foundational concepts every founder needs to get right from day one, because it affects your registration fees, your ability to bring in new shareholders later, and your annual compliance filings. Let us break it down clearly.

Overview

Authorised capital (also called nominal or registered capital) is the maximum amount of share capital that a company is permitted to issue to its shareholders, as stated in its Memorandum of Association (MOA), specifically in the capital clause. Think of it as a ceiling or a licence limit - it does not mean the company has actually received this money, only that it is legally allowed to issue shares up to this value.

Paid-up capital is the actual amount of money that shareholders have paid to the company in exchange for shares that have been issued and allotted to them. This is the real capital that has come into the company's bank account (or been received as a permissible non-cash consideration in specific cases) against issued shares.

The relationship between the two is straightforward: paid-up capital can never exceed authorised capital. A company can have authorised capital of, say, a certain amount, but choose to issue and receive payment for only a portion of it as paid-up capital. If the company later wants to issue more shares beyond its current authorised limit, it must first increase its authorised capital through a formal procedure under the Companies Act, 2013.

Why It Matters

This distinction is not just academic - it has real, practical consequences:

• Registration and compliance fees: Government fees for incorporation and several annual filings are often linked to the authorised capital slab of the company, not the paid-up capital. This means a company can set a high authorised capital and pay corresponding fees, even if its actual paid-up capital is much lower.
• Future fundraising flexibility: If your authorised capital is set too close to your current paid-up capital, you will need to go through the process of increasing authorised capital every time you want to issue new shares - to new investors, for ESOP pools, or for bonus issues. Planning a reasonable buffer from the start avoids repeated procedural steps.
• Investor perception and cap table clarity: Investors evaluating your company will look at both figures - the authorised capital tells them your company's ceiling for share issuance, while the paid-up capital tells them the actual equity capital currently invested and outstanding.
• Statutory filings and disclosures: Both figures are disclosed in your annual return (Form MGT-7/MGT-7A) and financial statements, and any mismatch or lack of clarity between the two can raise questions during due diligence or audits.
• Minimum capital requirements: While the Companies Act no longer prescribes a mandatory minimum paid-up capital for private or public companies (following amendments that removed the earlier minimum capital thresholds), many founders still choose a reasonable starting paid-up capital to reflect genuine business needs and credibility.

Getting this right from incorporation avoids two common problems: paying unnecessarily high fees for authorised capital you do not need yet, or constantly having to increase authorised capital every time you plan a fresh round of share issuance.

Key Differences and Eligibility

Definition

• Authorised Capital: Maximum capital a company is permitted to raise through share issuance, as per its MOA
• Paid-up Capital: Actual capital received from shareholders against shares already issued and allotted

Where it is recorded

• Authorised Capital: Capital clause of the Memorandum of Association
• Paid-up Capital: Company's balance sheet, under shareholders' equity, and in the register of members

Can it exceed the other

• Authorised Capital: Sets the ceiling; can be increased through a formal procedure
• Paid-up Capital: Can never exceed the company's current authorised capital at any point in time

Government fee linkage

• Authorised Capital: Government fees for incorporation and several filings are generally slab-linked to this figure
• Paid-up Capital: Does not directly determine most government fee slabs, though it is relevant for other regulatory thresholds (such as certain audit or compliance applicability criteria)

Change process

• Authorised Capital: Requires altering the MOA, typically via an ordinary resolution (for most companies) and filing Form SH-7 with the RoC, along with payment of additional fees on the incremental capital
• Paid-up Capital: Increases automatically each time new shares are issued and allotted (via Form PAS-3), without a separate MOA alteration, as long as it stays within the authorised limit

Minimum requirement

• Authorised Capital: No specific statutory minimum currently prescribed, though a company must have some authorised capital reflecting its intended share structure
• Paid-up Capital: No mandatory minimum paid-up capital currently prescribed for private or public companies, following relevant amendments to the Companies Act - however, always verify current provisions, as thresholds and requirements can be revised

Typical founder decision point

• Authorised Capital: Decided at incorporation, ideally with some reasonable buffer over expected initial paid-up capital
• Paid-up Capital: Decided based on actual funds founders/shareholders are ready to invest immediately

Documents and Requirements

For setting authorised and paid-up capital at incorporation:

• Memorandum of Association (MOA), with the capital clause stating the authorised capital and the division into shares of a fixed nominal value
• Subscriber sheet, showing the number of shares each subscriber agrees to take and pay for, which forms the basis of the initial paid-up capital
• Proof of payment/receipt of subscription money from shareholders, reflected in the company's bank statement and books of account

For increasing authorised capital:

• Board resolution approving the proposal to increase authorised capital and to call a general meeting
• Notice of general meeting with explanatory statement
• Ordinary resolution (for most companies, unless the articles require a special resolution) passed by shareholders approving the increase
• Altered Memorandum of Association reflecting the new, higher authorised capital
• Form SH-7 filed with the Registrar of Companies, along with the resolution and altered MOA, and payment of the differential government fee on the additional authorised capital

For increasing paid-up capital (issuing new shares within the existing authorised limit):

• Board resolution approving the fresh issue of shares
• Offer letter or rights issue letter, as applicable, to existing shareholders or new investors
• Share application and allotment records
• Form PAS-3 (Return of Allotment) filed with the RoC after the shares are allotted and paid up

Step-by-Step Process

To increase authorised capital:

1. Check the current authorised capital stated in the MOA and confirm the additional amount needed.
2. Convene a board meeting to approve the proposal and call a general meeting of shareholders.
3. Issue notice for the general meeting with the explanatory statement.
4. Pass an ordinary resolution (or special resolution, if required by the articles) approving the increase in authorised capital.
5. File Form SH-7 with the Registrar of Companies within the prescribed time, along with the resolution and altered MOA, and pay the applicable government fee on the incremental capital.
6. Receive confirmation from the RoC once the form is processed, after which the company's authorised capital officially stands increased.

To increase paid-up capital (issue new shares within existing authorised limit):

1. Confirm you have sufficient headroom between current paid-up capital and authorised capital for the proposed new issue.
2. Pass a board resolution approving the fresh share issue, pricing, and allottees.
3. Complete any required shareholder approvals, such as a special resolution for a preferential allotment, if applicable.
4. Collect share application money from the proposed allottees.
5. Allot the shares through a board resolution confirming allotment.
6. File Form PAS-3 with the RoC within the prescribed time after allotment.
7. Update the register of members and the company's cap table to reflect the new paid-up capital.

Cost and Fees 2026

Costs primarily arise from government fee slabs and professional charges, and these can change from time to time, so treat the following as indicative and always verify the current rate before budgeting:

• Incorporation-stage government fees: Fees payable to the RoC at the time of incorporation are generally linked to the authorised capital slab chosen, so a higher authorised capital at incorporation typically means a higher upfront government fee, even if the initial paid-up capital is much smaller.
• Fees for increasing authorised capital: When you later increase authorised capital via Form SH-7, government fees are charged on the incremental capital (the difference between the new and old authorised capital), based on the prescribed fee slab under the Companies (Registration Offices and Fees) Rules.
• Stamp duty: Certain states levy stamp duty on the increase in authorised capital, in addition to RoC fees, and the applicable rate varies by state.
• Fees for issuing new shares (Form PAS-3): This filing generally attracts a nominal statutory filing fee, separate from any capital increase fee, though no incremental government fee is charged purely for increasing paid-up capital within an already-authorised limit.
• Professional fees: Charges from a company secretary or CA for drafting resolutions, altering the MOA, and filing forms can vary depending on the complexity and whether shareholder approvals require additional coordination.

Because government fee slabs, stamp duty rates, and professional charges are revised periodically and vary by state, always verify the current rate before finalising your budget.

Timeline

• Setting authorised and paid-up capital at incorporation: This happens as part of the standard incorporation process and does not add separate time, since it is built into the SPICe+ filing.
• Increasing authorised capital: Typically takes around 1-3 weeks from board approval to RoC confirmation, assuming documentation is in order and there are no queries from the Registrar.
• Increasing paid-up capital through a fresh share issue: This can range from a couple of weeks for a straightforward rights issue among existing shareholders to a longer period for issues involving new investors, valuation, and due diligence.

These timelines are indicative and can vary depending on how quickly resolutions are passed, documentation is finalised, and the Registrar processes the filing.

Comparison and Key Distinctions

• Authorised capital is a ceiling; paid-up capital is the actual money received against shares issued so far - the two are related but fundamentally different concepts.
• A company's paid-up capital can be increased simply by issuing more shares (within the existing authorised limit) without altering the MOA, whereas increasing authorised capital always requires an MOA alteration and RoC filing.
• Government incorporation fees are generally tied to authorised capital, not paid-up capital, which is why many founders start with a modest but reasonably buffered authorised capital rather than an unnecessarily high figure.
• Neither figure currently has a mandatory statutory minimum for most companies, following amendments that removed earlier minimum capital requirements - but this should always be verified for the specific company type and current rules.
• Increasing authorised capital is a prerequisite, not an alternative, to increasing paid-up capital beyond the current authorised limit - you cannot issue shares that would push paid-up capital above the authorised ceiling without first raising that ceiling.

Common Mistakes

• Setting authorised capital far higher than needed at incorporation, resulting in unnecessarily high government fees at the very start.
• Setting authorised capital too close to initial paid-up capital, forcing the company to go through the increase process almost immediately when the next funding round or ESOP pool comes up.
• Confusing the two figures in investor conversations, presenting authorised capital as if it reflects actual invested equity.
• Forgetting to file Form SH-7 after passing the resolution to increase authorised capital, which leaves the change incomplete from a compliance standpoint.
• Issuing shares beyond the current authorised limit without first increasing authorised capital, which is not permitted and can create serious compliance complications.
• Not accounting for state-specific stamp duty when increasing authorised capital, leading to budget surprises.
• Overlooking the impact on other compliance thresholds, since paid-up capital and turnover levels can affect applicability of certain provisions, such as specific audit or governance requirements, so it helps to track both figures accurately over time.

FAQ

What is the main difference between authorised and paid-up capital?

Authorised capital is the maximum value of shares a company is permitted to issue, as stated in its Memorandum of Association, while paid-up capital is the actual amount shareholders have paid for shares already issued and allotted to them.

Can paid-up capital be higher than authorised capital?

No, paid-up capital can never exceed the company's authorised capital at any given time. If a company wants to issue shares that would push paid-up capital beyond the current authorised limit, it must first increase its authorised capital.

Is there a minimum paid-up capital required to start a private limited company?

Currently, there is no mandatory minimum paid-up capital prescribed for private or public companies, following amendments to the Companies Act that removed earlier minimum capital thresholds. However, rules can be revised, so it is best to verify the current requirement with a professional.

How do I increase my company's authorised capital?

You need to pass a board resolution, then an ordinary resolution (or special resolution, if your articles require it) at a shareholders' meeting, alter the Memorandum of Association, and file Form SH-7 with the Registrar of Companies along with the applicable government fee.

Does increasing paid-up capital require changing the Memorandum of Association?

No, as long as the new paid-up capital stays within the existing authorised capital limit, you do not need to alter the MOA. You simply issue and allot new shares and file Form PAS-3 with the RoC.

Why do government fees depend on authorised capital instead of paid-up capital?

Government incorporation and certain filing fees are structured around authorised capital slabs because it represents the company's declared ceiling for share capital, which is used as a standard basis for fee calculation under the Companies (Registration Offices and Fees) Rules.

What happens if I never increase my authorised capital but keep getting new investors?

You simply will not be able to issue new shares beyond your current authorised capital to those investors until you formally increase the authorised capital through the required resolution and RoC filing process.

Is stamp duty applicable when increasing authorised capital?

Yes, in many states, stamp duty is applicable on the increase in authorised capital, in addition to the RoC filing fee, and the rate varies by state, so it is advisable to check the current rate applicable in your state before proceeding.

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