Authorised Capital vs Paid-Up Capital: What's the Difference?

Almost every first-time founder trips over this pair of terms the moment they read their own incorporation documents. Authorised capital and paid-up capital sound like two names for the same number, and plenty of people treat them that way — right up until a bank, an investor or an auditor asks a question that only makes sense if you understand the difference. The distinction is not academic. It quietly shapes how much you pay at incorporation, how easily you can issue new shares later, and what your company looks like on paper to anyone doing diligence.

The simplest way to hold the two apart

Authorised capital is the ceiling. It is the maximum amount of share capital your company is legally permitted to issue to shareholders, and it is written into your Memorandum of Association. Paid-up capital is what has actually been issued and paid for — the real money shareholders have put in, in exchange for shares the company has actually allotted.

So authorised capital is a limit, and paid-up capital is a reality. A company can have a large authorised capital and a tiny paid-up capital; what it cannot do is have paid-up capital that exceeds its authorised capital. The ceiling always sits above, or at, the floor.

Authorised capital is permission. Paid-up capital is performance. One tells you what the company may do; the other tells you what it has done.

A worked example

Suppose a company is incorporated with an authorised capital figure and two founders who each take an equal shareholding funded with a modest amount of real money. The amount the founders actually bring in and receive shares for is the paid-up capital. The authorised figure in the Memorandum is simply the headroom within which the company is allowed to allot shares — now and in the future — without having to go back and formally expand that ceiling.

If, a year later, those founders want to bring in an angel investor by issuing fresh shares, two things have to be true. There has to be room under the authorised ceiling to issue the new shares, and the company has to actually allot them and receive the money, which increases paid-up capital. If there is not enough room under the ceiling, the authorised capital has to be increased first — a separate corporate action with its own process.

Why the authorised figure is not something to maximise

New founders sometimes assume a bigger authorised capital looks more impressive, so they ask for a very high figure at incorporation. This is usually a mistake for two reasons. First, the government fees and stamp duty associated with capital are tied to the authorised figure, so a large authorised capital can increase your incorporation cost for headroom you will not use for years. Second, a very high authorised capital paired with a tiny paid-up capital tells a slightly odd story to anyone reading your filings — a lot of permission, very little performance.

The sensible approach is to set an authorised capital that comfortably covers your foreseeable issuances — your founder shares and a realistic first round — and to increase it later if and when you need the room. Increasing authorised capital is a well-trodden procedure; we cover exactly how it works in our guide to increasing authorised share capital.

How paid-up capital actually changes

Paid-up capital moves only when the company issues new shares and receives consideration for them. That happens in a few typical situations:

• At incorporation — the founders subscribe to the initial shares set out in the Memorandum and pay for them.
• On a funding round — new shares (or convertible instruments that later become shares) are issued to investors, and the money they pay becomes part of paid-up capital.
• On a rights issue or preferential allotment — existing or new shareholders are allotted additional shares.
• On ESOP exercise — when employees exercise vested options, shares are issued and paid-up capital rises. Our ESOP guide covers how that interacts with your cap table.

Each of these is an allotment that must be properly documented and reported to the Registrar of Companies. The paid-up figure on your master data is only as accurate as the filings behind it, which is one reason sloppy cap table hygiene becomes expensive during diligence.

Where the two numbers show up in real life

You will meet these figures far more often than you expect:

• Opening a current account — banks look at your incorporation documents, which carry both figures.
• Investor diligence — investors read your paid-up capital and share structure closely, and a mismatch between what you told them and what your filings show is a red flag.
• Tenders and empanelment — some tenders specify a minimum paid-up capital as an eligibility criterion.
• Loan applications — lenders assess the capital shareholders have genuinely committed, which is the paid-up figure, not the authorised ceiling.

Common misunderstandings worth clearing up

A few myths cause real confusion:

• "Authorised capital is money in the bank." It is not. It is a limit on paper. The company does not hold the authorised amount anywhere.
• "We must pay up the full authorised capital." No — you issue shares up to the ceiling as and when needed. There is no obligation to issue the full authorised amount.
• "There is a high mandatory minimum paid-up capital." The old minimum paid-up capital requirement for private companies was removed, so companies can be incorporated with a modest paid-up capital. Confirm the current position before relying on any specific figure, but the days of a large mandatory minimum are gone.

Getting it right at incorporation

The practical decisions at incorporation are straightforward once you separate the two ideas. Choose a paid-up capital that reflects what the founders are genuinely putting in. Choose an authorised capital that gives you sensible headroom without inflating your cost for permission you will not use. And keep every subsequent allotment documented and filed, so the paid-up figure on record always matches reality. If you are still at the structuring stage, our overview of private limited company registration walks through how these choices fit into the wider setup, and you can see how we price the work on our pricing page.

Does changing capital affect ownership?

This is where founders often conflate two separate things. Increasing authorised capital, on its own, changes nobody's ownership — it only raises the ceiling. Issuing new paid-up shares, on the other hand, can change ownership percentages, because new shares dilute existing holders unless everyone participates proportionately. So when you plan a round, the sequence matters: you raise the authorised ceiling if there is not enough room, then you allot the new shares, and it is the allotment — not the ceiling change — that moves the cap table. Keeping those two actions distinct in your head prevents a lot of confusion when you are negotiating a term sheet and trying to understand what a given investment does to your stake.

It also explains why diligence teams look at the allotment history rather than the authorised figure. The authorised capital tells them almost nothing about who owns what; the record of share allotments, and the resulting paid-up capital, tells them everything. If those filings are incomplete or inconsistent, the company looks disorganised at exactly the moment it most needs to look buttoned-up.

A quick reference

The short version

Authorised capital is the maximum your company is allowed to issue; paid-up capital is what shareholders have actually paid for. The first is a ceiling in your Memorandum, the second is real money tied to real shares. Do not inflate the authorised figure to look impressive — it costs you and signals little. Set enough headroom for your founder shares and first round, keep every allotment filed correctly, and raise the ceiling only when you genuinely need the room.