Authorized and paid-up capital: understand the numbers before investing
A founder is asked to confirm the company's capital for an investor. The memorandum says Rs 1,000,000, the accounts show Rs 400,000 of paid-up capital, and the bank holds Rs 150,000. These figures can all be correct. The useful question is what each amount measures, and whether the underlying share records agree.
Which number answers your question?
| Figure | What to check | What it does not establish |
|---|---|---|
| Authorized capital | Nominal ceiling in the latest memorandum | Cash available or company valuation |
| Issued capital | Issued share count × nominal value for each class | Whether every issued share is fully paid |
| Paid-up capital | Amounts paid or credited as paid on issued shares | Current bank balance |
| Share premium | Issue price above nominal value, separately accounted for | Extra nominal headroom used |
| Founder loan | A separately documented amount owed to the founder | Automatic ownership or additional shares |
SECP's incorporation FAQ distinguishes authorized and paid-up capital. For an existing business, reconcile the memorandum with the member register, allotment records and accounts. A number entered in an application is not a substitute for the evidence behind it. If classes or partly paid shares exist, use a separate line for each.
Worked example: Rs 1 million is not money in the bank
Assume one class of ordinary shares with nominal value Rs 10, all issued shares fully paid in cash, and no other equity transactions.
| Calculation | Result |
|---|---|
| 100,000 authorized shares × Rs 10 | Rs 1,000,000 authorized capital |
| 40,000 issued shares × Rs 10 | Rs 400,000 issued and paid-up capital |
| Rs 1,000,000 − Rs 400,000 | Rs 600,000 nominal headroom |
| Rs 400,000 received − Rs 250,000 spent | Rs 150,000 remaining cash, assuming no other cash movements |
The spending changes cash and the relevant expense or asset account. It does not by itself rewrite the number of shares or reduce paid-up capital. Nor does the Rs 1 million ceiling mean the founders promised to deposit Rs 1 million immediately. Check actual subscriptions and payment obligations.
Worked example: an investor pays above face value
Suppose the company proposes 20,000 new shares at Rs 25 each, of which Rs 10 is nominal value. The proposed receipt is Rs 500,000. Its split is Rs 200,000 nominal capital and Rs 300,000 premium, before transaction costs and subject to the actual terms. Total issued nominal capital would become Rs 600,000, leaving Rs 400,000 of headroom. Do not compare the entire Rs 500,000 receipt with nominal headroom.
This is arithmetic, not approval to allot. Read the new-share issue guide for the decision and document sequence. A proposal within the ceiling still needs the appropriate corporate route. Premium also needs correct accounting and treatment; it is not simply unrestricted trading profit.
A capital check you can prepare yourself
- Copy the latest capital clause and record its effective version.
- List every shareholder, class, number of shares and nominal value from the register.
- Match each allotment to its approval, subscription terms and payment or non-cash evidence.
- Separate loans, premiums and unpaid subscriptions instead of forcing differences into one capital balance.
- Reconcile the totals to the latest accounts. Put each unexplained difference on an exceptions list with the document needed to resolve it.
If the proposed nominal issue exceeds available capacity, use the authorized-capital increase checklist. If the investor is buying a founder's existing shares, start with the share-transfer guide; that is a different transaction.
Before you choose an authorized amount
Write down the initial subscriptions and the next realistically planned funding round. Compare the resulting nominal capital with the current ceiling and check the official fee schedule. A very large figure can create cost without improving cash flow; a very small figure may require another filing soon. Sector requirements, investment terms and the company's actual documents can change the choice. Ask for a capital reconciliation when records disagree, rather than selecting the largest number on file.
I need help reconciling my company capital and planning a proposed investment. Start with a short summary. Ask for the work scope, required documents and fee before proceeding. Do not send passwords, identity scans or bank statements in the first enquiry.
Sources
This guide is written against the official and clearly labelled professional references below. Rates, thresholds and portal procedures change between reviews, so open the primary source before relying on a figure.
- SECP: incorporation FAQs, September 2025 PDF
- Companies Act 2017 — Pakistan Code consolidation updated 7 October 2022
- SECP: Seventh Schedule fee publications
Questions people also ask
Does authorized capital equal company value?
No. Nominal capital and an investor’s negotiated valuation answer different questions. Label both clearly in a funding proposal.
Can paid-up capital be higher than cash?
Yes. The worked example shows capital remaining unchanged after cash is spent. Check the accounts and transactions behind the difference.
Does a founder bank transfer automatically buy shares?
Do not assume so. Identify whether it is a subscription, loan, reimbursement or another payment, and complete the relevant documentation.
Can I issue shares immediately if there is room?
Headroom is only one check. Review the articles, approvals, issue terms and required filings before allotment.
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