What is Authorized, Issued and Paid-Up Capital?

Before directly heading into definitions, first make clear that What are shares? and Why a company needs funding? When a new business starts operating, the most crucial time for it is the starting phase and handling the cashflow. Because 80% of startup fail just because of lack of investment. So, a business needs funding. It could come from savings, angel investment or venture capitalist.
For investment, a company issue the shares which represent a part or ownership in the company. To hold the share of the company, a shareholder must pay for it in cash or in some kind of service a company needs. So that, the money can be used for some operation expenses.
Now, heading into the definitions and learning more about capital, lets dive deeper into this.

What is Authorized Capital?

A company has to register its maximum amount of capital to the Registrar of Companies(RoC). It means upto that amount a comapany is authorized to raise the capital. That is why it is called Authorized Capital. Which is why companies are registered with such authorized capital which is well above their current needs of financing. That is why it is also called Registered Capital or Nominal Capital. The limit of amount is outlined in the constitutional documents and can be changed with the approval of shareholders. 

For example, if a company has a maximum authorized amount is ₹20 Lakh, it means a company cannot issue shares more than this amount of money, otherwise they have to raise the authorized capital in the constitutional documents. Because to issue more amount than authorized capital is against the law.

By this the another question arises.

What is Issued Capital?

If a company needs money for further operations, it can issue some portion of the shares to the investors and can keep some portion to issue more shares at a later date. So, issued capital is the amount of capital which has been issued by the company to the shareholders. 

Suppose, a company has a authorized capital of ₹20 Lakh and it needs ₹10 Lakh for the further operations. So, the company can issue ₹10 lakh to the shareholders and the shares of ₹10 lakh will be sold to the investors. That is why in this case ₹10 Lakh will be the issued capital.

But if the company needs ₹25 lakh for its operations and authorized capital is less, then first the company has to increase the authorized capital, after that they can issue the capital.

It means issued capital can never be more than authorized capital. It has to be less than or equal to the authorized capital.

What is Paid-Up Capital?

It is the amount of capital for which the company has received the payments from the shareholders. A paid-up capital is created when a company sell its shares on the primary market, directly to the investors, usually through an Initial Public Offering(IPO).

If the issued capital is equal to the paid-up capital, it means the shareholders have paid fully for the shares. And if it is more than the paid-up capital, it means shareholders have not done the full payment and the company can ask for the full payment of the shares they own, as the company need the money for operations.

With the companies Amendment Act 2015, there is no minimum requirement of paid-up capital of the company. It means a company can even operate with ₹1000 as paid-up capital.

Lets extend the above example. If a company has issued ₹10 lakh capital and shareholder has paid ₹5 lakh for the shares he own. It means the paid-up capital will be ₹5 lakh and shareholder has to pay more ₹5 lakh, which is the remaining amount.