Authorised Capital vs Paid-up Capital: Meaning, How Much to Choose, Fees to Increase It and Common Errors
- Authorised capital is the ceiling on shares a company may issue; paid-up capital is the money shareholders have actually paid — a company cannot issue shares beyond the authorised limit.
- There is no minimum paid-up capital since 2015; register with a small authorised capital (₹1 lakh is typical) and increase it through SH-7 when a round is signed.
- Increasing authorised capital costs an MCA fee on the incremental amount plus state stamp duty; it must be done before any allotment that would breach the limit.
“How much capital should I put?” is the second question every founder asks after the name, and the answer is usually misunderstood. Authorised capital is not money in the bank and not a measure of size; it is a legal ceiling. Paid-up capital is the money shareholders have actually paid for shares. Confusing the two leads founders to register with inflated numbers (and pay stamp duty on them), or to sign a funding round and then discover the company cannot legally allot the shares. This guide defines the five capital terms, shows the arithmetic with an example, and explains the SH-7 process and cost to increase authorised capital.
The five capital terms
| Term | Meaning | Where it appears |
|---|---|---|
| Authorised (nominal) capital | Maximum share capital the company may issue, stated in Clause V of the MOA | MOA, master data on MCA |
| Issued capital | Part of the authorised capital actually offered to shareholders | Register of members, PAS-3 filings |
| Subscribed capital | Part of the issued capital that shareholders have agreed to take | Allotment records |
| Called-up capital | Amount the company has demanded on the subscribed shares | Board resolutions on calls |
| Paid-up capital | Amount actually received (called-up minus calls in arrears) | Balance sheet, annual return, company master data |
For most private companies the shares are fully paid at allotment, so issued = subscribed = called-up = paid-up, and only two numbers matter: authorised and paid-up.
Worked example
A company is registered with authorised capital of ₹10,00,000 divided into 1,00,000 equity shares of ₹10 each. Two founders subscribe 5,000 shares each and pay ₹10 per share.
- Authorised capital: ₹10,00,000 (1,00,000 shares × ₹10)
- Issued, subscribed and paid-up capital: ₹1,00,000 (10,000 shares × ₹10)
- Unissued headroom: 90,000 shares
An angel investor agrees to invest ₹50,00,000 for 10% post-money. The company issues 1,111 shares at a premium: face value ₹10, premium ₹4,490 per share (rounded). Paid-up capital rises by only ₹11,110; the ₹49.9 lakh balance goes to the securities premium account. The authorised headroom of 90,000 shares is nowhere near exhausted — which is why a modest authorised capital rarely constrains a startup, as long as the share price carries a premium rather than being issued at par.
How much authorised capital to register with
- Minimum paid-up capital was abolished in 2015; the practical floor is whatever the subscribers put in — ₹10,000 works, ₹1,00,000 is conventional.
- MCA charges no incorporation form fee up to ₹15 lakh authorised capital; stamp duty on the AOA, however, rises with the authorised amount in most states.
- Choose authorised capital that comfortably covers planned issues at face value for the next 12–18 months. For a bootstrapped or angel-funded startup issuing shares at a premium, ₹1 lakh to ₹10 lakh is plenty. For a family business that will bring in ₹2 crore as capital at par, register ₹2 crore or plan the SH-7 in advance.
- Bonus issues and ESOP exercises consume authorised capital at face value — check headroom before either.
Increasing authorised capital: the SH-7 process
- Check the AOA permits an increase (Table F does; older articles may not — amend first).
- Board meeting to approve the increase and call a general meeting.
- Ordinary resolution of members at the EGM or AGM altering Clause V of the MOA.
- File SH-7 within 30 days with the altered MOA, the resolution and the notice, paying the MCA fee on the difference between the old and new authorised capital plus state stamp duty on the increase.
- Only after SH-7 is approved can the board allot shares beyond the old limit (PAS-3 within 30 days of allotment).
Illustratively, raising authorised capital from ₹1 lakh to ₹25 lakh attracts an MCA fee on the ₹24 lakh increment under the slab in the Companies (Registration Offices and Fees) Rules — a few thousand rupees — plus stamp duty at your state's rate on the same ₹24 lakh (in Delhi, 0.15%). Budget both when a term sheet is signed; the professional cost of an SH-7 is small compared with a late-filed PAS-3 or an allotment made without headroom.
Paid-up capital: obligations that scale with it
- Subscription money must be deposited and INC-20A filed within 180 days before the company starts business.
- Share certificates within two months of allotment, with stamp duty paid on the certificates.
- Paid-up capital drives several thresholds: “small company” status (paid-up capital up to ₹4 crore and turnover up to ₹40 crore) with lighter compliance, the need for a company secretary (₹10 crore), and CSR and internal-audit triggers at higher levels.
- Every increase in paid-up capital is reported in PAS-3 and reflected in the annual return.
Common mistakes
- Registering ₹1 crore authorised capital “for image”. Stamp duty is paid on it immediately and nobody outside the company reads it as strength; paid-up capital and net worth are what banks look at.
- Allotting shares beyond authorised capital. The allotment is void; unwinding it after money has been received is painful and attracts penalties.
- Issuing founder shares at par after a priced round — the difference from fair value is taxable in the founder's hands as a perquisite or under section 56(2)(x).
- Treating unpaid subscription money as “capital”. Until it is received the shares are not paid-up and INC-20A cannot be filed truthfully.
- Forgetting that ESOP exercises need headroom — an ESOP pool of 10% on a ₹1 lakh capital at ₹10 par is fine, but a large bonus issue may need SH-7 first.
If you are incorporating now and unsure what capital to state, the Company Registration team at KyaTax sizes authorised capital to your funding plan so that you neither overpay stamp duty nor need an SH-7 in month three.
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Open Company Registration →Frequently asked questions
Is there a minimum paid-up capital for a private limited company?
No. The minimum paid-up capital requirement was removed by the Companies (Amendment) Act, 2015. Companies commonly register with ₹1 lakh authorised capital and a matching or smaller paid-up amount.
Can a company issue shares more than its authorised capital?
No. Any allotment beyond the authorised capital is void. The company must first increase authorised capital by an ordinary resolution and file SH-7, then allot the shares and file PAS-3.
What does it cost to increase authorised capital?
An MCA fee on the incremental authorised capital under the Companies (Registration Offices and Fees) Rules plus state stamp duty on the increase, along with the SH-7 form fee. The professional fee for the meetings and filing is separate.
Does authorised capital have to be paid into the bank?
No. Authorised capital is only a ceiling. Only the paid-up capital — the amount shareholders actually pay for shares — must be received in the company's bank account.
General information for FY 2026-27, not professional advice for your specific case. Rules change — verify against the latest notification or ask a KyaTax expert.
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