• Products
    Investment Suite
    Stocks
    Mutual Funds
    Future and Options
    IPO
    Exchange Traded Funds
    Commodity
    Stockcase (Stock Baskets)
    Non Convertible Debentures
    Sovereign Gold Bond
    Exclusive
    NRI Account
    Corporate/HUF Trading Account
    Private Client Group
    Features
    SipIt
    MTF
    Investment Suite
    Exclusive
    Features
  • Platform
    Trading Platforms
    Kotak Neo App & Web
    Nest Trading Terminal
    NEO Trade APIs
    Features and Tools
    MTF
    Securities Accepted as Collateral
    Margin Requirements
    Equity Screeners
    Payoff Analyzer
    Calculators
    SIP Calculator
    Lumpsum Calculator
    Brokerage Calculator
    Margin Calculator
    MTF Calculator
    SWP Calculator
    CAGR Calculator
    Simple Interest Calculator
    ELSS Calculator
    Step up SIP Calculator
    All Calculators
    Trading Platforms
    Features and Tools
    Calculators
  • Pricing
  • Research
    Research Calls
    Long Term calls
    Short Term calls
    Intraday calls
    Derivatives calls
    Pick of the week
    Top Monthly Picks
    Research Reports
    Fundamental Research Report
    Technical Research Report
    Derivative Research Report
    Research Calls
    Research Reports
  • Market
    Market Movers
    Share Market Today
    Top Gainers
    Top Losers
    Stocks
    Large Cap
    Mid Cap
    Small Cap
    Indices
    Nifty 50
    Bank Nifty
    FinNifty
    Nifty Midcap India
    VIX
    All Indian Indices
    Mutual Funds
    SBI Mutual Funds
    HDFC Mutual Funds
    Axis Mutual Funds
    ICICI Prudential Mutual Funds
    Nippon India Mutual Funds
    All AMC's
    IPO
    Upcoming IPO
    Current IPO
    Closed IPO
    Recently Listed IPO
    Quarterly Results
    Reliance Industries Quarterly Results
    TCS Quarterly Results
    HDFC Bank Quarterly Results
    Market Movers
    Stocks
    Indices
    Mutual Funds
    IPO
    Quarterly Results
  • Learn
    Stockshaala
    Basics of Stock Market
    Introduction to Fundamental Analysis
    Introduction to Technical Analysis
    Derivatives, Risk management & Option Trading Strategies
    Personal Finance
    Resource
    Market Ready
    Kotak Insights
    Infographic
    Podcast
    Webinars
    Youtube Channel
    Investing Guide
    Demat Account
    Trading Account
    Share Market
    Intraday Trading
    IPO
    Mutual Funds
    Events
    Budget 2025
    Muhurat Trading
    Share Market Holiday
    Market Outlook 2025
    Stockshaala
    Resource
    Investing Guide
    Events
  • Partner
    Business Associates
    Kotak Connect Plus
    Startup connect
  • Support
    FAQs
    Circulars
    Bulletins
    Contact Us
    Forms Download
    Get your Statement

The Role Of Paid-Up Capital In Company Formation And Funding

  •  5 min read
  •  1,005
  • 10 Jul 2025
The Role Of Paid-Up Capital In Company Formation And Funding

Starting a company in India can feel complicated. The industry jargon involved in business formation can appear exhaustive and overwhelming. Amongst the terminology, however, is paid-up capital, which is not only a legal requirement but also shapes how your company is perceived by other stakeholders. Paid-up capital has real-world implications as it affects your company's credibility, access to funding and the ability to win contracts for further funding.

Imagine a company sells shares to raise money. When you buy those shares, you’re giving real cash to the company in exchange for ownership.

The total money the company gets from selling those shares is called paid-up capital.

For example, if the company sells 100,000 shares at ₹10 each, they get ₹10,00,000 as paid-up capital.

That’s the actual cash the company uses to run its business or grow.

It is worth noting that paid-up capital is different from authorised capital - the latter is the maximum value of shares your company can issue, basis its charter. Paid-up capital, by contrast, reflects how much money has actually been received by the company in exchange for shares. In essence, it represents the real stake that you, your co-founders, and possibly early investors have in the business.

When you’re forming a company in India, paid-up capital plays a foundational role. Historically, there were minimum paid-up capital requirements: Rs. 1 lakh for private limited companies and Rs. 5 lakhs for public limited companies. However, these thresholds were abolished by the Companies (Amendment) Act, 2015, making it possible for you to start a company with as little as Rs. 1 as paid-up capital.

This regulatory shift aimed to encourage entrepreneurship and lower barriers to entry for startups. However, it is important to remember that just because you can start a company with minimal paid-up capital doesn’t mean you should. The amount of paid-up capital you declare signals to banks, vendors, and customers how serious and committed you are. A higher paid-up capital can be a badge of credibility, indicating that your company is strongly committed to the business.

The significance of paid-up capital goes beyond the initial company formation – it’s also a critical part of your company’s funding strategy. Here’s how it impacts your business:

1. Initial funding

Paid-up capital is often the initial money your business receives. It’s what you use to lease office space, buy equipment, or hire employees. For many early-stage companies, it’s the only capital available before external investors or loans come into play. The more robust your paid-up capital, the more flexibility you have in the crucial first months.

2. Raising external funds

When you approach banks for loans or external investors for funding, one of the first things they’ll look at is your paid-up capital. It acts as a buffer against losses and a measure of your commitment. A company with a substantial paid-up capital is generally viewed as less risky than one with a token amount. This can make a real difference in your ability to secure loans at reasonable interest rates or to negotiate better terms with investors.

3. Compliance and expansion

Certain regulatory and contractual requirements are tied to paid-up capital. For example, if you wish to bid for large government tenders, or if you want to register as an NBFC or other regulated entity, minimum paid-up capital requirements may apply. When you expand operations, especially across state or national boundaries, your paid-up capital can determine whether you meet statutory thresholds.

4. Adding more paid-up capital

You’re not locked into the paid-up capital you declare at formation. If your business grows and you need more funds, you can increase your paid-up capital by issuing new shares to existing or new shareholders. This is a common way for startups to bring in angel or venture capital funding without taking on debt.

Paid-Up Capital Vs Other Forms Of Funding

While paid-up capital is important, it’s not the only way to fund your business. Here’s how it compares to other funding sources:

  • Debt (Bank Loans): Unlike paid-up capital, loans have to be repaid with interest. Paid-up capital is ‘permanent’ money in your company; it’s not owed to anyone.
  • Retained Earnings: These are profits your company earns and reinvests. Paid-up capital, on the other hand, is external money that comes in through share issuance.
  • Preference Shares or Convertible Notes: These can add complexity but also flexibility. Paid-up capital from equity shares is straightforward and doesn’t carry obligations for fixed returns.

Once paid-up capital is received, it is on your company’s balance sheet as part of shareholders’ equity. Unlike loans, it doesn’t have to be repaid, though shareholders can realise returns through dividends or by selling their shares in the future. Over time, as your company earns profits or raises more capital, the relative importance of paid-up capital may diminish but it remains a cornerstone of your financial structure.

Paid-up capital is more than simply an admin box to check off when starting a company; it is a measure of credibility, a source of initial finance, a requirement for compliance and a planning vehicle as your business develops. The quantity and structure of your paid-up capital may affect your overall opportunities and limitations in ways that the numbers on a balance sheet do not. Each decision, whether bootstrapped with a small amount of funding or simply gearing up to grow fast, is best made with an appropriate understanding of and management of paid-up capital.

FAQs

Yes, you can increase your paid-up capital by issuing additional shares to existing or new shareholders, but you must follow regulatory procedures and file the necessary documents with the Registrar of Companies.

No, paid-up capital itself is not taxed, but any income generated from the business or subsequent share transfers may attract tax as per prevailing laws.

Legally, you can start with as little as Re. 1, but having too little paid-up capital may limit your company’s credibility and access to funding or business opportunities. It could also restrict your ability to meet certain regulatory or contractual requirements in the future.

This article is for informational purposes only and does not constitute financial advice. It is not produced by the desk of the Kotak Securities Research Team, nor is it a report published by the Kotak Securities Research Team. The information presented is compiled from several secondary sources available on the internet and may change over time. Investors should conduct their own research and consult with financial professionals before making any investment decisions. Read the full disclaimer here.

Investments in securities market are subject to market risks, read all the related documents carefully before investing. Brokerage will not exceed SEBI prescribed limit. The securities are quoted as an example and not as a recommendation. SEBI Registration No-INZ000200137 Member Id NSE-08081; BSE-673; MSE-1024, MCX-56285, NCDEX-1262.

Did you enjoy this article?

0 people liked this article.

What could we have done to make this article better?

Open Your Demat Account Now!
+91 -

Open Your Demat Account Now!
+91 -