People are not sure about the authorized capital in starting of a new company. Normally Registrar of the company requires declaring their capital structure. ROC must be informed of each change takes place in the company.
Capital structure is mainly defined by the authorized and paid-up capital. Authorized capital is the maximum amount of capital the shareholders are authorized to invest in the company and the paid-up capital is the amount actually invested.
Points on Authorised Capital
- Capital is first decided at the beginning of the Company incorporation.
- The increase in the amount of authorized capital increases ROC fee.
- After the incorporation of the company, the authorized capital can be changed at any point of time. Capital is not liable for use to calculate the net worth of the company.
- There is a limit on the company to issue shares. Shares can be issued less than authorized capital.
What is Paid-up Capital?
- Paid up capital cannot be more than authorized capital. It can be equal or less than to authorized capital.
- Shares must be issued by the company. These are a number of shares that has been decided as paid up capital during the time of incorporation. This should be done within 60 days of incorporation of the company.
- Amount of paid up capital can be used for business expenses of the company.
Other Concepts on Capital
- There are other concepts as well though they are less important, you may want to understand, issued capital and called-up capital.
- Issued capital is issued to shareholders by the company.
- Called-up capital refers to issued capital that has not been paid-up.
Authorized Capital for Start-ups
Most of the start-ups are unable to pay Company Incorporation fee with Authorized capital to Ministry of Corporate Affairs (MCA) .Capitals can be invested by the members or shareholders is considered an unsecured loan or share application money or share premium. In the case when the private limited company starts scaling-up operations or requires in the form of debt or equity, authorized capital of the company is raised and additional shares are issued to the founding members commensurate with their investment in the company.