Definition: The Paid-up Capital refers to the amount that has been received by the company through the issue of shares to the shareholders. Simply, the money injected into the firm by the shareholders in exchange for the shares purchased by them is called the paid-up capital.
The Paid-up capital can be equal to or less than the authorized capital, since, the company may issue fewer shares against the maximum capital limit, it is authorized to sell. If the paid-up capital is equal to the authorized capital, then a company cannot raise its additional capital requirements through the issue of shares, unless the authorized capital is increased. Or otherwise, may resort to the external borrowings to finance its business requirements.
For Example, A firm has an authorized capital of Rs 10,000,000, where the value of each share is Rs 10. The firm received applications for 8,00,000 shares, but it issued only 10,00,000 shares of Rs 8 each. All the calls have been met by the shareholders; then the paid-up capital will be Rs 80,00,000 (10,00,000 x 8).
Thus, the firm’s capital has been funded by Rs 80,00,000 by the shareholders against the number of shares purchased by them. The remaining capital worth Rs 20,00,000 can be raised anytime a firm wants.