Paid Up Capital Meaning English

Paid Up Capital Meaning

Paid-up capital is the total amount of capital that a company has received from shareholders in exchange for shares of stock. It represents the funds raised by the company through issuing its shares and is recorded on the company’s balance sheet under shareholders’ equity.

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What Is Paid Up Capital?

Paid-up capital is the total amount of money a company has received from shareholders in exchange for shares of the company. It’s the portion of subscribed capital for which the company has received payment, reflecting the actual funding the company has for its operations and growth.

Paid-up capital is the actual money a company raises from issuing shares, not just the authorized share capital it’s allowed to issue. This capital forms part of the company’s equity and reflects its financial strength.

It’s a critical source of funding for a company’s operations and growth initiatives. Unlike borrowed capital, it doesn’t need to be repaid. Investors gauge a company’s size and potential through its paid-up capital, impacting investment decisions.

For example, if a company issues 1 million shares at a face value of ₹10 each and all are purchased by shareholders, the paid-up capital is ₹10 million (1 million shares x ₹10).

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Suppose a company issues 500,000 shares and each share is bought by investors for ₹20. Then, the company’s paid-up capital becomes ₹10 million (500,000 shares x ₹20), representing the total amount paid by shareholders for their shares.

Paid-up Capital Formula

The formula for calculating paid-up capital is:

Paid-up Capital = Number of Shares Issued × Face Value per Share

It involves multiplying the total number of shares a company has issued by the price at which each share was sold to shareholders.

Benefits of Paid Up Capital

The main benefits of paid-up capital include providing essential funds for a company’s operations and growth without the obligation of repayment. It enhances the company’s creditworthiness, attracts further investment, and indicates financial stability, crucial for investor confidence and long-term business sustainability.

  • Funding for Operations and Growth: Supplies crucial capital for business activities and expansion plans.
  • No Repayment Obligation: Unlike loans, paid-up capital doesn’t need to be repaid, reducing financial burden.
  • Creditworthiness Enhancement: Indicates a company’s financial stability, improving its ability to secure loans.
  • Investor Attraction: Higher paid-up capital can attract further investments by showcasing company’s growth potential.
  • Financial Stability Indicator: Demonstrates a company’s solid financial base, boosting stakeholder confidence.
  • Long-term Sustainability: Provides a foundation for long-term business viability and success.

Difference Between Authorised Capital And Paid Up Capital

The main difference between authorized capital and paid up capital is that Authorized capital is the maximum amount a company can legally raise through share sales, while paid up capital is the actual amount received from selling these shares.

AspectAuthorized CapitalPaid Up Capital
DefinitionThe maximum capital a company is legally allowed to raise by issuing shares.The actual shares issued by a company from selling its shares.
LimitRepresents the upper limit of share capital the company can issue.Indicates the actual capital raised, which can be less than or equal to the authorized capital.
PurposeSet as a part of the company’s charter to limit the amount of shares that can be issued.Reflects the capital that has been invested by shareholders and is available for business operations.
ChangeCan be altered with shareholders’ approval, typically requiring a change in the company’s charter.Changes when more shares are issued and paid for by shareholders, up to the limit of authorized capital.
Legal RequirementMust be stated in the company’s founding documents and disclosed to regulatory authorities.Calculated based on the actual shares issued and paid for, and reported in financial statements.
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  • Paid-up capital represents the actual funds a company has garnered from selling its shares to shareholders. It’s the paid portion of the capital subscribers committed to, indicating the real financial resources available for the company’s operational and expansion activities.
  • Paid-up capital is calculated by the formula: the total issued shares of the company multiplied by the selling price of each share. This calculation reflects the actual amount of money raised from shareholders through selling shares.
  • The main benefits of paid-up capital lie in providing crucial funding for company operations and expansion without repayment needs, enhancing creditworthiness, attracting more investment, and signifying financial health, all essential for investor trust and long-term business endurance.
  • The main difference is that authorized capital is the upper limit a company can raise through issuing shares, while paid-up capital represents the actual funds collected from shareholders through the issued shares’ sale.

Paid-up Capital – FAQs 

What Is Paid Up Capital?

Paid-up capital is the actual amount of money a company has raised from selling its shares to shareholders. It represents the total capital that shareholders have paid for their acquired shares in the company.

How do we calculate paid up capital?

Paid-up capital is calculated by multiplying the total number of issued shares by the face value of the share.This amount represents the actual funds received from shareholders for their shares.

What is the difference between authorized share capital and paid up capital?

The main difference between authorized share capital and paid-up capital is that authorized capital is the maximum share value a company can issue, while paid-up capital is the actual amount raised from issued shares.

What is the purpose of paid up capital?

The purpose of paid-up capital is to provide a company with essential funds for its operations and growth. It represents actual financial resources raised through share sales, forming a crucial part of a company’s equity.

What is return of paid up capital?

Return of paid-up capital refers to the process where a company returns a portion of the capital that shareholders originally paid for their shares. This typically occurs during a buyback or company liquidation.

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