Understanding Authorized vs. Paid-Up Capital on Your Cap Table
Quick Summary
Authorized Capital is the maximum share capital your company is legally allowed to issue, while Paid-Up Capital is the actual money shareholders have paid in exchange for shares. Confusing the two is one of the most expensive early-stage mistakes Indian founders make — it can stall a funding round by 3–4 weeks and trigger penalties under the Companies Act, 2013.
The Legal Breakdown / Why It Matters
Under the Companies Act, 2013, every Indian private limited company is required to declare its share capital structure in Clause V of its Memorandum of Association (MOA) — known as the Capital Clause. This single clause sets the ceiling for everything your cap table can ever do.
- Authorized Capital (also called "Nominal Capital"):Defined under Section 2(8) of the Companies Act, 2013. The maximum value of shares your company is empowered to issue. Think of it as the "credit limit" set in your MOA.
- Paid-Up Capital:Defined under Section 2(64) of the Companies Act, 2013. The amount of money the company has actually received from shareholders in exchange for issued shares. Think of it as the "amount actually spent" against your credit limit.
Authorized vs. Paid-Up — The Key Distinctions
| Parameter | Authorized Capital | Paid-Up Capital |
|---|---|---|
| Statutory Definition | Section 2(8), Companies Act, 2013 | Section 2(64), Companies Act, 2013 |
| What It Represents | Maximum issuable share value | Actual share value received |
| Where It Lives | Clause V of the MOA | Statutory Register & PAS-3 filings |
| Can Exceed the Other? | Yes — must always be ≥ Paid-Up | No — can never exceed Authorized |
| Form to Modify | Form SH-7 (within 30 days) | Form PAS-3 (within 30 days of allotment) |
| Stamp Duty | Yes — state-specific, paid on increase | No separate duty on allotment |
| Approval Needed | Ordinary Resolution + AOA check | Board Resolution + Shareholder approval |
Why This Matters When You Raise Capital
When an investor commits ₹2 Cr to your company, you cannot issue them shares for ₹2 Cr if your Authorized Capital is only ₹1 Lakh (the default for most freshly incorporated companies). You must first:
- Pass a Board Resolution to increase Authorized Capital.
- Convene an EGM and pass an Ordinary Resolution of shareholders (unless your AOA requires a special resolution).
- Amend the MOA — and possibly the AOA via Form MGT-14, if the AOA caps the authorized limit.
- File Form SH-7 with the MCA within 30 days of the resolution, with prescribed ROC fee + state stamp duty.
- Only then can you allot shares and file Form PAS-3 within 30 days of allotment.
Miss the 30-day SH-7 window: daily penalty of ₹1,000, capped at ₹5 Lakh under Section 64(2). Miss PAS-3: the allotment itself can be deemed invalid.
How to Do It on Founding Legals
- Step 1: Go to Cap Table → Capital Structure → Setup. Enter your existing Authorized Capital (from your MOA) and Paid-Up Capital (from your latest PAS-3). The dashboard displays a capacity bar and a headroom alert if you're using >80% of Authorized limit.
- Step 2: Before signing a term sheet, go to Cap Table → Simulate Round. Enter investor commitment and valuation. The platform flags if current capital is sufficient, the exact ₹ amount needed, and estimates stamp duty and MCA fees.
- Step 3: Click "Increase Authorized Capital". Founding Legals generates Board & EGM Resolutions, Notices, Amended MOA, pre-filled Form SH-7, and Form MGT-14.
- Step 4: Once SH-7 is filed, return and click "Issue New Shares". Enter allottee details, share class, and consideration. The platform auto-generates Form PAS-3 and updates your Register of Members (Form MGT-1).
- Step 5: Your Compliance Calendar auto-populates 30-day deadlines for both SH-7 and PAS-3, with email and WhatsApp reminders.
Nearly every Indian private limited company is incorporated with a default Authorized Capital of ₹1,00,000 (10,000 shares of ₹10 face value). Founders discover the limit only when a Series A investor is ready to wire funds — triggering a frantic 3-week scramble. If your committed round is north of ₹50 Lakh, you almost certainly need to increase Authorized Capital before closing.
Stamp duty on Authorized Capital increase is a one-time cost. Instead of increasing ₹1 Lakh → ₹5 Lakh today and ₹5 Lakh → ₹50 Lakh in six months, plan two rounds ahead. Keep your Authorized Capital at roughly 2× your projected Paid-Up Capital after the next round.