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What is Authorized Capital and Paid-Up Capital in Balance sheet of a Company

What is Authorized Capital and Paid-Up Capital in Balance sheet of a Company

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  Posted on April 27, 2021

 

The authorised capital of a company (sometimes referred to as the authorised share capital, registered capital or nominal capital, particularly in the United States) is the maximum amount of share capital that the company is authorised by its constitutional documents to issue (allocate) to shareholders.

Authorized Share Capital Vs. Paid-Up Capital

Before a publicly traded company can sell stock, it must specify a certain limit to the amount of share capital that it is authorized to raise. This limit is set forth in its constitutional documents and can only be changed with the approval of the shareholders. This is sometimes known as the authorized share capital.

A company does not usually issue the full amount of its authorized share capital. Instead, some will be held in reserve by the company for possible future use. The amount that is issued is called the paid-up capital.

Paid-up capital can never exceed authorized share capital. In other words, the authorized share capital represents the upward bound on possible paid-up capital. In terms of investing or immediate business finance decisions, paid-up capital is generally more important.

The amount of Authorized capital in India must be listed in the company’s founding documents. Any time the authorized share capital changes, these changes must be documented and made public.

Paid-up capital can be found or calculated in the company’s financial statements. The Securities and Exchange Commission (SEC) requires publicly traded companies to disclose all sources of funding to the public.

Read The Basics of Outstanding Shares and the Float, Difference Between Issued and Subscribed Share Capital, Difference Between Paid-Up and Called-Up Share Capital, and Difference Between Authorized and Outstanding Shares.

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