Authorised capital is the ceiling: the maximum share capital your company may issue, as written in its memorandum. Paid-up capital is what shareholders have actually paid for the shares the company has issued. A company registered with ₹10 lakh authorised capital and ₹1 lakh paid-up has issued shares worth ₹1 lakh and has room to issue ₹9 lakh more without changing its memorandum. The authorised figure costs you money in fees and, in many states, stamp duty, even though none of it is in the bank. The paid-up figure is real money that belongs to the company.
For most new private companies the sensible choice is a modest authorised capital that covers the next year or two of share issues, and a paid-up capital that matches what the founders are actually putting in. If you are registering now and want the capital structure settled as part of incorporation, our private limited company registration service fixes it in the SPICe+ filing for you.
Four kinds of capital, defined
The Companies Act, 2013 defines each term in section 2.
| Term | Meaning under the Act | In plain words |
|---|---|---|
| Authorised (nominal) capital, s.2(8) | The capital authorised by the memorandum as the maximum amount of share capital | The upper limit on shares the company can issue |
| Issued capital, s.2(50) | The capital the company issues from time to time for subscription | Shares the company has offered |
| Subscribed capital, s.2(86) | The part of the capital for the time being subscribed by members | Shares people have agreed to take |
| Paid-up capital, s.2(64) | The amount credited as paid-up, equal to the amount received as paid-up on shares issued | Money actually received for those shares |
In a new private company these usually collapse into two numbers. The subscribers to the memorandum take shares at incorporation, the company issues exactly those shares, and the subscribers pay in full. Issued, subscribed and paid-up capital are then the same figure. They separate only in larger or older companies: when an offer is not fully taken up, or when shares are issued partly paid and the balance is collected later through calls.
Section 2(64) also excludes “any other amount received in respect of such shares”. If a share with a face value of ₹10 is issued at ₹100, the paid-up capital is ₹10 per share; the extra ₹90 is securities premium and is shown separately.
There is no minimum paid-up capital
Before 2015, a private company needed a paid-up capital of at least ₹1 lakh. The Companies (Amendment) Act, 2015 removed the figure from the definition of “private company” in section 2(68) with effect from 29 May 2015, and no new minimum has been set. A private company can be formed today with whatever paid-up capital the founders choose, even a few thousand rupees.
That does not make a token paid-up capital a good idea in every case. Banks, landlords, large customers and some licensing authorities look at paid-up capital as a rough signal of commitment. And the money has to be real: after incorporation, the subscribers must pay for their shares, and the company files a declaration of commencement of business confirming it before it starts business or borrows.
Where authorised capital costs money
Authorised capital is a number on paper, but two charges are linked to it.
- MCA fees. The registration fee charged by the Ministry of Corporate Affairs rises with the authorised capital. The MCA charges no incorporation filing fee for companies with authorised capital up to ₹15 lakh, as the government announced when SPICe+ was introduced and the SPICe+ FAQ explains. Above that, fees apply on a slab basis. Later, the fee for filing an increase also depends on the size of the increase.
- Stamp duty. The articles of association, and in some states the memorandum, attract state stamp duty, and in many states the duty on the articles is a percentage of share capital. The state of your registered office decides the rate. A higher authorised capital can therefore raise the stamp duty with no benefit, and some states also charge duty when capital is later increased.
Paid-up capital, by contrast, carries no MCA registration fee of its own. What it costs is the cash the shareholders put in, which stays with the company as its money.
How to choose the numbers at incorporation
- Start with real money in. Decide what the founders will actually invest as share capital at the start. That is your paid-up capital. Money needed later can come in as further shares, or as founder loans, which are recorded differently.
- Set the shareholding split. Pick a face value per share (₹10 is common; ₹1 makes fine splits easier) and work out the number of shares each founder takes. Make sure the numbers give the ownership percentages you agreed.
- Leave headroom. Set authorised capital above the paid-up figure by enough to cover the shares you expect to issue soon: an employee pool, a second round of founder money, or an angel cheque you are already discussing.
- Check the cost line. If you are near the ₹15 lakh mark, see whether staying at or under it avoids the MCA fee. Check what the stamp duty works out to in your state at the figure you are considering.
- Do not inflate for appearances. A large authorised capital does not tell anyone the company has money. Under section 60, if the company states its authorised capital on letterheads, notices or similar documents, it must state the subscribed and paid-up capital just as prominently.
For example, two founders investing ₹1 lakh between them, with a seed round expected within a year, might register with ₹1 lakh paid-up and an authorised capital of a few lakh, rather than ₹1 crore authorised that they will not need for years.
Raising capital later
Two separate things can need changing, and founders often confuse them.
Increasing authorised capital
This is needed only when you want to issue shares beyond the current ceiling. Under section 61(1)(a), a company with share capital may, if its articles authorise it, alter its memorandum in general meeting to increase its authorised share capital. The company then files a notice with the Registrar within thirty days, together with the altered memorandum, under section 64(1). Fees and, where the state charges it, stamp duty on the increase are paid at that stage, and a penalty accrues for each day the notice is late. Our page on raising a company’s authorised capital covers that procedure.
Increasing paid-up capital
This is the actual share issue: the board and shareholders approve an allotment, the investor pays, the shares are allotted and the company files a return of allotment with the Registrar. As long as the new total stays within the authorised capital, the memorandum does not change. Who the shares must first be offered to, and at what price, depends on the route chosen, such as a rights issue to existing shareholders or a private placement, each with its own procedure.
Put simply: raise authorised capital when you hit the ceiling; raise paid-up capital whenever someone actually puts money in for shares.
Complianto (complianto.in), operated by Mentorcorp Private Limited, is a private consultancy and is not affiliated with any government body. We do not issue official documents. We charge a professional fee for application assistance and advisory services. Applicants can apply directly to the government without our fees via the official portals: MCA (mca.gov.in), Income Tax (incometax.gov.in), GST (gst.gov.in), MSME (udyamregistration.gov.in), FSSAI (foscos.fssai.gov.in), Startup India (startupindia.gov.in), and IP India (ipindia.gov.in).
This article is general information, not legal or tax advice.
