Authorised Capital & Paid Up Capital

What is authorised capital and How different it is from paid up capital? What is its importance while analysing a balance sheet of a firm?

Questions by amaresh_K_jha

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vasudeo007

  • Apr 20th, 2009
 

Authorised Capital: The capital which is maximum capital the company can raise in its life time. Hardly any company issues capital which is equal to authorised capital.

Paid up capital: Paid up capital means that capital for which people have actuallypaid money.

Authorised company may be say 1000 shares of Rs. 10/- each.
Company issues 300 shares to people.
People actually pay for only 250 shares (50 being outstanding receivable from people)
Then paid up capital is 250 shares * 10 rupees = 2500 rupees.

Its importance in Balance Sheet:

If a company has 1000 shares of 10 rupees as authorised capital
and its paid up capital is 100 shares * 10/-
It means that company can fall back on its unissued shares in case of financial crunch.

If out of 1000 shares company has issued 900 shares then it can issue only 100 shares. This is comparitively bad situation.

Secondly when a company earns profits then  ratios are calculated:

Net profit per share
Book value per share
Sales per share
etc

Here if profits are higher and paid up capital is lower then company is in comfortable position and vice versa.

Regards,
Vasudeo

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hifi55

  • May 4th, 2009
 

Authorised capital is the capital which a company is authorised to issue to the general  public, it cannot issue more than that limit. Paid up capital is the actual amount of capital  which the public has subscribed.

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