Paid-Up Capital

By Manu Rao | Updated March 2026

What Is Paid-Up Capital?

Paid-up capital is the portion of authorized capital for which shares have been issued and shareholders have actually paid. It represents real money — or money's worth — that has come into the company. Section 2(64) of the Companies Act 2013 defines it as the aggregate amount of money paid by shareholders for shares issued.

Unlike authorized capital (which is a paper ceiling), paid-up capital reflects the company's actual equity base. When someone asks "how much capital does this company have?" — they usually mean paid-up capital.

Legal Framework

• Section 2(64) — Definition of paid-up share capital
• Section 2(8) — Authorized capital (the ceiling for paid-up capital)
• Section 52 — Securities premium (amount received above face value)
• Section 53 — Prohibition on issuing shares at a discount (except sweat equity)
• Section 62 — Further issue of share capital (rights issue, private placement)

How Paid-Up Capital Works

The relationship between authorized, issued, subscribed, called-up, and paid-up capital:

In practice, for most private limited companies, issued = subscribed = called-up = paid-up capital. The distinctions matter more for public companies that may issue partly paid shares.

Face Value vs. Premium

When shares are issued above face value, the excess is called securities premium. For example, a share with a face value of Rs. 10 issued at Rs. 100 generates Rs. 10 of paid-up capital and Rs. 90 of securities premium per share. The paid-up capital figure refers only to the face value component. Securities premium is recorded separately under Section 52.

Why Paid-Up Capital Matters for Foreign Investors

1. FDI Reporting

When a foreign investor subscribes to shares of an Indian company, the investment is reported to RBI through Form FC-GPR on the FIRMS portal. The form captures the number of shares allotted, face value, issue price, and total consideration. The paid-up capital of the company changes after each allotment.

2. Compliance Thresholds

Several compliance requirements are triggered by paid-up capital thresholds:

• Company Secretary appointment — Mandatory if paid-up capital exceeds Rs. 5 crore (Section 203) for public companies
• Secretarial audit — Required for listed companies and companies with paid-up capital >= Rs. 50 crore (Section 204)
• CARO applicability — Companies (Auditor's Report) Order 2020 applies based on turnover, borrowings, and paid-up capital thresholds
• Internal financial controls reporting — Enhanced requirements for companies above certain paid-up capital levels

3. FEMA Pricing

Under FEMA (Non-debt Instruments) Rules 2019, shares issued to non-residents must be priced at or above fair market value. For unlisted companies, the fair value is determined by a SEBI-registered merchant banker using accepted valuation methods (DCF, NAV, or comparable transactions). The face value (which determines paid-up capital) is often much lower than the issue price.

4. Thin Capitalization

Section 94B of the Income Tax Act limits interest deduction on loans from associated enterprises. If a foreign-invested company borrows heavily from its parent instead of raising equity, the interest deduction is capped at 30% of EBITDA. Maintaining adequate paid-up capital (equity) relative to debt keeps the company within safe limits.

Minimum Paid-Up Capital

The Companies Act 2013 removed the earlier minimum paid-up capital requirements:

• Private companies — no minimum (previously Rs. 1 lakh)
• Public companies — no minimum (previously Rs. 5 lakh)

However, some sector-specific regulators mandate minimum paid-up capital:

Increasing Paid-Up Capital

Paid-up capital increases when the company allots new shares. Methods include:

• Rights issue (Section 62(1)(a)) — Offering shares to existing shareholders in proportion to their holdings. Requires board and shareholder approval.
• Private placement (Section 42) — Issuing shares to a select group of identified persons (not exceeding 200 per financial year, excluding QIBs and ESOPs). Requires special resolution.
• Bonus issue (Section 63) — Converting reserves or securities premium into paid-up capital by issuing free shares to existing shareholders.
• Conversion of debt to equity — Converting outstanding loans or debentures into equity shares.

For foreign-invested companies, every increase in paid-up capital involving non-resident shareholders triggers Form FC-GPR filing within 30 days.

Reducing Paid-Up Capital

Reduction of paid-up capital under Section 66 requires:

1. Special resolution
2. Application to NCLT
3. NCLT hearing (creditors may object)
4. NCLT confirmation order
5. File Form INC-28 with ROC within 30 days of NCLT order

For foreign-invested companies, capital reduction involving buyback of non-resident shares requires FEMA compliance — pricing at or above fair market value and reporting to RBI.

Common Mistakes

• Confusing paid-up with authorized capital — Foreign investors sometimes state their "company capital" as the authorized figure. In investor discussions, lender applications, and government tenders, it is the paid-up capital that matters.
• Not allotting shares after receiving money — When a foreign investor remits money to the company's bank account, the shares must be allotted within 60 days (Section 42(6) for private placements). Not allotting means the money must be refunded. Keeping it without allotment is a violation.
• Issuing shares below face value — Section 53 prohibits issuing shares at a discount (except sweat equity under Section 54). A company with Rs. 10 face value shares cannot issue them at Rs. 5. This is occasionally confused with issuing shares at below fair market value (which is a FEMA issue, not a Companies Act issue).
• Not recording securities premium separately — When shares are issued above face value, the premium must go to the securities premium account (Section 52). Mixing premium with paid-up capital inflates the paid-up capital figure incorrectly.
• Ignoring thin capitalization — Loading the subsidiary with debt from the foreign parent while keeping paid-up capital minimal triggers Section 94B interest disallowance. Tax planning should balance equity and debt.

Practical Example

A Japanese manufacturing company sets up a subsidiary in India with authorized capital of Rs. 1 crore (10,00,000 shares of Rs. 10 each). Initially, it subscribes to 1,00,000 shares at Rs. 10 each. Paid-up capital: Rs. 10 lakh.

Six months later, the subsidiary needs more capital. The Japanese parent invests Rs. 50 lakh at a premium — subscribing to 2,00,000 shares at Rs. 25 per share (Rs. 10 face value + Rs. 15 premium). Paid-up capital after this allotment: Rs. 10 lakh + Rs. 20 lakh = Rs. 30 lakh. Securities premium account: Rs. 30 lakh (2,00,000 shares x Rs. 15). Total funds received: Rs. 10 lakh + Rs. 50 lakh = Rs. 60 lakh.

The paid-up capital is Rs. 30 lakh (face value of all issued shares), not Rs. 60 lakh. The remaining Rs. 30 lakh sits in the securities premium reserve. Both amounts are part of shareholders' equity on the balance sheet, but they are classified differently.

Form FC-GPR is filed with RBI within 30 days of the second allotment. The valuation report from a SEBI-registered merchant banker confirms that Rs. 25 per share represents fair market value.

For guidance on structuring your company's capital, visit Beacon Filing.