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Paid Up Capital

  • What is Paid-up Capital
  • Understanding Paid-Up Capital

Definition of Paid-up Capital

Paid-up capital, also known as contributed capital or paid-in capital, refers to the amount of money that a company has received from its shareholders in exchange for its shares/stocks. Paid-up capital represents the actual amount of capital that the company has raised through selling its shares on the primary market directly to investors, usually through an initial public offering (IPO). When shares are traded among investors on the secondary market, no additional paid-up capital is created as the proceeds in those transactions go to the selling shareholders and not to the issuing company.

In some countries, paid-up capital may also be a legal requirement for incorporating a company or obtaining certain licenses or permits. The amount of paid-up capital required may vary depending on the type of company, its size, and the industry in which it operates.

Understanding Paid-Up Capital

Paid-up capital, also known as paid-in capital or contributed capital, is the amount of money that a company has received from two sources of funding: the face value of stock and excess capital. Each share of stock has a base price, called its face value. Usually, this value is very low, often less than ₹100. Any amount paid by investors more than the face value is called additional paid-in capital or paid-in capital in excess of face value. The balance sheet shows the face value of issued shares as common stock or preferred stock under the shareholder equity section.

For example, if a company issues 100 shares of common stock with a face value of ₹100 and sells them for ₹4,15000 each, the shareholders' equity of the balance sheet shows paid-up capital totaling ₹4,15,00000, consisting of ₹100 of common stock and ₹4,14,90000 of additional paid-up capital.