Authorised Capital vs Paid Up Capital: Understanding the Differences

There is no minimum issued capital requirement under Singapore law except for certain types of companies such as banks and insurance companies. Given that shares issued by companies incorporated in Singapore have no par value or nominal value, the liabilities of the shareholders instead are measured by the amount of consideration, unpaid on the shares they hold. Moreover, the abolition of authorised capital gave investors the opportunity to focus solely on a company’s issued capital. This is because a company could be incorporated with an authorised capital of $1 million divided into 1 million shares each with par value of $1 but only issued 2 shares. The authorised capital of $1 million could seem impressive to the misinformed and be misleading. This means that a company’s capital will not be measured against the par value of the shares but instead against the number of shares issued and the actual capital paid up (ie. issued capital).

Under the Companies Act 2013, the companies must fulfill the minimum authorized share capital. In case of a private limited company, the minimum authorized capital requirement is Rs. 1 lakh. In case of one person companies, the minimum requirement is Rs. 1 lakh as well. However, in case of public limited companies, this amount should be at least Rs. 5 lakh.

• This figure is specified in the company’s Memorandum of Association and represents the upper limit of funds that the company can raise through the issuance of shares.
• It is possible for the company to increase this amount in future if the shareholders feel like there’s a need to do so.
• Understanding the attributes of Authorized Capital and Paid-Up Capital is essential for investors, shareholders, and company management to make informed decisions and assess the company’s financial performance.
• The first resolution consists of approving the decision to raise the capital of the company.
• These capital requirements for foreign investors reflect the Philippines’ strategy to balance openness to global business with regulatory oversight.
• This flexibility provides them the chance to be competitive within the dynamic markets.

The authorised capital and paid up capital of a company have distinct purposes. While authorised capital is considered as the target capital or fund that the company wants to raise for its business, it is the paid up capital that is actually used for conducting the day-to-day business activities. Overall, Authorized Capital serves as a strategic tool for companies to plan and manage their financial resources effectively. It provides a clear indication of the company’s financial capacity and flexibility, allowing stakeholders to assess the company’s potential for growth and investment opportunities. The amount of capital which is mentioned in the Capital Clause of MOA is authorized to share capital. MOA Capital clause authorizes the company a limit on its share number i.e. it cannot increase the amount of capital as provided in it.

This article provides a comprehensive guide on increasing authorized capital stock, detailing the steps, requirements, and implications for Philippine businesses seeking to enhance their share capital framework. Recognizing these differences not only aids in effective financial management but also enhances investor confidence and ensures regulatory compliance. By carefully planning both types of capital during company registration processes—whether for private limited companies or One Person Companies—entrepreneurs can set a solid foundation for their ventures. Authorized capital is the maximum amount of capital that a company is legally authorized to issue, as stated in its articles of association. Issued capital is the total number of shares that a company has issued to shareholders, and is the actual amount of capital that the company has raised from the issuance of new shares.

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• The industry-leader and most trusted platform in tax and legal documentation in India.
• Rule 805 of the SGX Listing Manual deals with changes in share capital and the requirement of shareholder authorisation for such cases which include the issuance of shares.
• In essence, authorized capital is a theoretical limit, while paid-up capital is the tangible amount of capital that has been invested in the company.
• From securing board and shareholder approvals to meeting SEC requirements, the process demands meticulous attention to detail and a firm grasp of regulatory nuances.

Authorized capital is stated in the Memorandum of Association and Articles of Association of a company. Filing of necessary documents with the regulatory authorities, such as the MCA or equivalent authority. This would include board resolutions, amended articles of association, and other forms as required, within the stipulated timeline.

In the world of corporate finance, understanding the distinction between authorised capital and paid up capital is crucial. Both terms are fundamental to a company’s financial structure and have significant implications for its operations and growth potential. This article will delve into the nuances of authorised capital vs paid up capital. We will explore their definitions, differences, and importance in the context of Indian companies. The company’s share capital includes both authorized share capital (a.k.a nominal capital) and paid up capital (a.k.a equity capital).

Authorized Capital and Paid up Share Capital: Key Differences

Another important aspect of Paid-Up Capital is that it is a critical component of the company’s equity structure. Paid-Up Capital is recorded on the company’s balance sheet as part of the shareholders’ equity, reflecting the shareholders’ ownership stake in the company. This capital is considered a permanent source of funding for the company, as it does not have to be repaid to shareholders unless the company is liquidated.

The authorized capital and paid up capital difference between authorized capital and paid up capital of a company can be raised with the purpose to expand or upscale its investment limits. The raised capital will allow the company to issue more shares to new and existing shareholders. It is very important to understand what is Authorised Capital of a company.

Why was the concept of authorised capital abolished?

If it wishes to sell shares worth more than this amount, it will first have to raise the authorised capital through a resolution at the general meeting. Besides limiting the shares sold by a company, authorised capital also determines the ROC fees for company registration and other compliances fees for companies. Rs. 6,00,000 from shareholders for the shares that it has issued, the paid-up capital would be Rs. This is not allowed, and the company would need to increase its authorized capital to Rs.

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A company’s capital is mainly received from the shareholders i.e. from shares and debentures. As the company is a legal entity it cannot generate money for investing it in the business i.e. capital. So it is collected from the shareholder by the way of issuing shares to them. Companies issue their shares in the share market to execute various purposes. These goals can be raising funds, decreasing debt, or meeting any other need to expand. Thus, as an investor or trader, you need to know about its management and fund level.

So, suppose the shareholders are collectively able to pay Rs.5 lakhs to the company, keeping the other 5 lakhs due for later. So, Rs.5 lakhs paid to the company becomes its paid up capital, and the due amount which is also Rs.5 lakhs becomes the collective liability all shareholders have towards the company. Besides, determining the liability of shareholders, paid up capital is also used to conduct the day-to-day activities of the company.

Different types of share capital

Further, there was no sound reason for a law to require such a ceiling in the first place. However, as of 30 January 2006, shareholders may still choose to impose a ceiling on a company’s share issues. These provisions must then be included in the company’s articles of association. The new capital limits and amended MOA have to be intimated to the ROC (Registrar of Companies). The documents submitted with these applications mainly include the notice of EGM, shareholders resolution in MGT-14, new shareholders’ list, amended MOA, and valuation report of the newly allotted shares. Authorized capital, also known as registered capital or nominal capital, is the maximum amount of capital that a company is legally authorized to issue, as stated in its articles of association.

Difference between Authorised and Paid up Share Capital

Increased authorized capital portrays a growth-oriented business with financial strength and, therefore, creates very positive investor perception. Still, much transparency in the usage of such funds is required to keep off skepticism and nurture the earned trust. Market capitalization refers to the total value of the outstanding shares in the market. It may lead to increased market capitalization upon issuance of new shares, provided the overall value of the company increases due to well-used capital.

Authorised capital is the total amount a company can issue, while paid-up capital is the actual amount shareholders have contributed. The difference reflects the company’s potential to raise funds versus the funds already invested by shareholders. From seizing new opportunities for growth, improving financial flexibility, to building investor confidence, authorized capital is a strategic factor that shapes the direction of the company. Thoughtful planning and precise execution make this decision a part of the company’s big picture and future aspirations. A higher authorized capital provides companies with the authority to issue more shares whenever required, without going through the approval process again and again. This makes the company ready to seize new opportunities immediately without facing any financial hindrances.

As per the Companies Amendment Act of 2015, there is no minimum requirement of paid-up capital a Private Limited Company can issue to the shareholders. The calculation of equity issuance is based on the type of shares to be issued, such as common shares or preference shares, and their nominal value. A company should not exceed its authorized capital when issuing new shares, taking into consideration the issue of shares at a discount or at a premium.

Triple i Consulting, a trusted provider of corporate services, offers specialized assistance to navigate these intricate requirements. Our expertise ensures compliance and minimizes delays, making us an invaluable partner for businesses tackling this critical step. These capital requirements for foreign investors reflect the Philippines’ strategy to balance openness to global business with regulatory oversight. Now, let’s check out the difference between authorized capital and paid up share capital in the following section. Increased authorized capital can help businesses match their financial capacity to their long-term goals, such as mergers, acquisition scaling of operations, or operational growth. This flexibility provides them the chance to be competitive within the dynamic markets.