Capital means the money or sum of money which is invested in a company to carry on its activities and business. The capital of a company is share capital. 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.
Memorandum of Association of the company requires stating the amount of its share in number and types of shares during the Private Limited Company Registration. A company cannot issue more no. of shares than stated in the MOA capital clause without making amendment in the said clause.
The amount of capital which is mentioned in the Capital Clause of MOA is authorized to share capital. It is also called nominal or registered 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.
It is not necessary to issue the whole authorized capital at once for public subscription. It can issue the share as per its requirements and need which cannot be more than the authorized capital. The authorized capital can be increased or decreased by the procedure laid down by the Companies act is following:
- AOA has to contain a provision which authorizes the company to increase its authorized capital as per Sec 61 of companies to act 2013. If no such provision is there then it has to be amended as per Sec 14 of Companies act 2013.
- Notice has to be issued all Members, Directors and the Auditors of the company as per sec 173(3) of companies act for calling a meeting of board of directors with the object to get their approval for increase in authorized capital, to fix date time and place for general meeting to obtain the approval of shareholders by ordinary resolution. It should contain a voting method for the meeting and explanatory statement according to sec 102 of companies act.
- On the date fixed the general meeting should be held and ordinary resolution under sec 61(1) (a) of companies act has to be passed.
- Form SH-7 has to be filled within 30 days of passing a resolution with the concerned registrar of the companies with the fees and following documents: Notice of GM, Certified True copy of Resolution, Altered Memorandum of Association.
- The registrar will check the form and attached documents and will approve the amendment in authorized share capital.
Paid up capital
It is the part of Called up capital which has been actually paid by the shareholders and received by the company. If the shareholder pays the entire amount called by the company then the called up capital will be equal to paid up capital. It is the part of capital which shareholders actually funded to the company. It can never be more than Authorized capital. It reflects how much company needs share funding to grow in the market. It raises the financing of the company and can be issued in form of Initial Public Offering (IPO).
The companies act 2013 required all private limited companies to have a minimum paid up capital of 1 lakh and all public limited companies to have a minimum paid up capital of 5 lakh. The Companies Amendment, 2015 removed such minimum paid up capital. Now you can choose the paid up capital as per your wish.
XY Ltd Company has as their authorized capital where each share’s value is Rs. 10. The company invites people to purchase a share in the company. The company receives an application for 10, 00,000 shares but issues only and called for Rs. 7 per share.
Here, authorized capital is 20, 00,000. It is the upper limit for issuing shares. The company cannot go beyond this limit.
Paid up capital is 8, 00,000 x 7 = Rs. 5, 60,000.
Difference between Authorized capital and Paid up share capital
- Authorized share capital is the maximum value of the share that a company can issue to the shareholders. Paid up capital is the amount of money which is actually paid by the shareholders to the company.
- The authorized capital is the maximum limit on the number of shares. Paid up capital has to be less than authorized capital i.e. it has to be within the limit set by authorized capital.
- The authorized capital has to be stated in the Capital clause of the MOA of the company. The paid up capital is also required to be stated in the capital clause of MOA.
- If the company wants to increase the authorized capital then the procedure as provided above by the companies act has to be followed. Paid up capital can be increased by the issue of shares or private placement.
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