Authorised to Paid-Up Capital: Simple Examples Unlock Share Structure

The Companies Act, 2013 separates a company’s share-capital stages from its ownership and control relationships. The sequence starts with the maximum amount allowed under the company’s memorandum and ends with the amount actually paid or credited on shares. Each stage answers a different question.

The first figure is the company’s authorised capital. Section 2(8) defines authorised or nominal capital as the maximum amount of share capital authorised by the company’s memorandum. It is a ceiling, not proof that shareholders have invested that amount.

Suppose ABC Pvt. Ltd. has authorised share capital of ₹10 crore. The company may issue shares within that limit, but the ₹10 crore does not mean that the full amount has already entered the business.

The next stage is issued capital. Section 2(50) describes it as the portion of capital that a company issues for subscription from time to time. If ABC decides to issue shares worth ₹8 crore, its issued capital becomes ₹8 crore, while ₹2 crore remains available within the authorised ceiling.

The figures move in stages. They do not describe the same event.

The five stages show how a share moves from permission to payment

The distinction becomes clearer when a company’s decisions are placed in order.

1. Authorised: The memorandum permits the company to have share capital up to a stated maximum.
2. Issued: The company offers a portion of that permitted capital for subscription.
3. Subscribed: Members agree to take some or all of the shares offered.
4. Called-up: The company demands payment for a stated amount on those shares.
5. Paid-up: Members pay, or the company credits as paid-up, the amount due on the shares.

Subscribed capital covers the portion members have agreed to take. Section 2(86) describes it as the part of the capital subscribed by the company’s members. If a company has ₹10 crore permitted, issues ₹8 crore and receives subscriptions for ₹7 crore, the subscribed figure is ₹7 crore.

A subscription does not necessarily require immediate payment of the entire face value. Section 2(15) defines called-up capital as the portion that the company has called for payment.

Consider a share with a face value of ₹10. The company may initially call ₹8 per share. The remaining ₹2 can be called later in accordance with the applicable terms and law.

Paid-up share capital records what the company has received or credited as paid-up for shares issued. Section 2(64) defines it separately and excludes other amounts received with a share issue merely because those amounts were received alongside it.

If the company calls ₹8 and the shareholder pays the full amount, the called-up and paid-up amounts are both ₹8. If a valid call remains unpaid, the paid-up amount can fall below the called-up amount.

One company example puts every figure in place

XYZ Ltd. provides a complete illustration:

The table shows why the numbers can decline at each stage. The company may have permission for ₹10 crore, offer ₹8 crore, receive subscriptions for ₹7 crore, demand ₹6 crore and collect or credit ₹5.90 crore as paid-up.

In practical terms, the first figure is the permitted ceiling. The second is what the company places before potential subscribers. The third is what members take. The fourth is what the company demands. The fifth is what has been paid or credited.

The Companies Act recognises these as separate concepts.

Paid-up funds do not set the company’s market value

A company with paid-up share capital of ₹10 lakh may have assets, revenue or a market valuation far above ₹10 lakh. The figure belongs to accounting and corporate-capital records. It is not automatically the market value of the business.

A share purchase also does not necessarily mirror the percentage of paid-up capital. Someone buying 60% of a company’s voting shares may pay a price above the shares’ nominal amount, or another legally permissible valuation, depending on the transaction.

The purchase price and the capital figure answer different questions. One concerns the transaction valuation. The other records the company’s share capital.

Share premium is another amount that may appear in investment documents. It should not be treated as interchangeable with the capital stages above.

Equity and preference shares form a separate classification

The five stages describe where capital stands in the issue-and-payment process. They do not describe the kind of share involved.

Section 43 broadly divides the share capital of a company limited by shares into equity share capital and preference share capital. Equity shares may carry normal voting rights or differential rights where permitted.

A company could therefore have ₹20 crore of permitted share capital, divided into ₹15 crore of equity and ₹5 crore of preference capital. Only part of either category may have been issued, subscribed, called up or paid up.

The stage and the type must be read together. A preference share can be part of the amount issued and paid, just as an equity share can. The classification does not replace the five-stage sequence.

Investment amount alone does not establish control

Capital contributed and voting power may produce different results. Assume A Ltd. invests ₹60 crore and B Ltd. invests ₹40 crore. The amounts may suggest a 60% to 40% split, but that conclusion requires an examination of the shares and their attached rights.

Section 2(87) uses Board control or more than half of total voting power when determining whether another company is a subsidiary. The nominal amount invested must therefore be considered separately from the legal voting position.

A company’s ownership structure needs more than one number. The analysis may involve the shares held, voting rights, Board control and the statutory conditions for a subsidiary relationship.

That is why expressions such as “50% paid-up subsidiary” or “75% paid-up subsidiary” can blur two separate ideas. A clearer description would state that the company’s paid-up share capital is ₹10 crore and that the parent controls 75% of its voting power, assuming the statutory conditions are satisfied.

The capital amount describes the company’s issued and paid share structure. The voting percentage describes control.

Overseas investors must read the figures separately

An overseas investor examining an Indian private company or startup may see authorised capital, paid-up capital, share premium, percentage ownership and voting rights in the same transaction documents. Those references do not carry the same meaning.

The investor should identify the number of shares the company is permitted to have, the number actually issued and the number to be acquired. The documents should also show the amount paid, the rights attached to those shares and the percentage of the company controlled after the transaction.

This review becomes more important when a transaction also involves foreign-investment rules, valuation requirements or relationships among group companies. A percentage in a term sheet may refer to ownership, voting power or another agreed measure, so the underlying rights need to be checked.

The same company may have a large permitted ceiling but a smaller issued amount. It may also have unpaid calls, different share classes or voting rights that do not track the money contributed.

Holding and subsidiary describe relationships between companies. The capital stages describe the company’s share-capital structure. Equity and preference describe the type of share capital.

Keeping those three questions apart prevents a capital figure from being mistaken for company value or corporate control. The statutory sequence remains: authorised, issued, subscribed, called-up and paid-up.