What is Paid Up Capital?
Paid Up Capital refers to the money that the shareholder has already paid in exchange for the shares with the issuing company. It refers to the portion of a company that the shareholder holds as they have paid for the shares.
Whenever a company raises shares in the market (IPO), a paid up capital is created by the investors in the exchange of company’s shares.
Calculation of Paid Up Capital
Paid-Up Capital = Number of Shares Issued × Face Value per Share
- For instance, if a company issues 1 million shares with a face value of ₹10 each, the paid-up capital would be:
- Paid-Up Capital=1,000,000 shares×₹10=₹10,000,000
This amount indicates the actual funds that the company has received from the shareholders.
Authorized capital refers to the maximum amount of capital a company is allowed to issue to shareholders. In simple terms, It represents the upper limit of share issuance.
The amount of capital is applied by a company under authorized capital is usually higher than the current need of the company. The amount of paid up capital can never exceed the amount of authorized capital since it can be only generated through the sale of shares.
Usually, authorized capital is sold when in need of additional equity.
Uses of Paid Up Capital
- Business Operations: Paid-up capital is used to fund the company’s operations, expansion plans, and other capital expenditures.
- Leverage: It helps in leveraging the company’s financial stability and creditworthiness for securing loans and additional financing.
- Shareholder Confidence: A higher paid-up capital has the ability to gain investor confidence.
