Authorised vs subscribed capital: the incorporation field that can cost you Rs 10 lakh

There are three capital numbers in a company, and the incorporation form makes it very easy to confuse the harmless one with the one that creates a legally enforceable obligation to deposit money.

Authorised capital is the maximum value of shares your company may ever issue. Nobody has to fund it. It is a ceiling written into your memorandum, and its only immediate effect is on fees: stamp duty and MCA form fees are charged on it, so a big number buys you bigger fees and nothing else.

Subscribed capital is what the founders sign up to take in the memorandum. This is real money, owed to the company.

Paid-up capital is what has actually landed in the bank.

Where the trap is

Section 10A of the Companies Act says a company cannot commence business until a director files Form INC-20A, within 180 days of incorporation, declaring that every subscriber has paid for the shares they agreed to take, with the bank statement attached as proof. Miss the deadline and the penalty is Rs 50,000 on the company plus Rs 1,000 per day per officer (capped at Rs 1 lakh), and the Registrar can strike the company off. INC-20A is one line in a longer first-year calendar; the rest of the penalties sit here.

Now look at how incorporation forms are usually filled. Most templates quietly set subscribed capital equal to authorised capital. A founder who has heard that “authorised capital is just a ceiling, it’s not real money” picks an impressive Rs 10 lakh, the template carries that number into the subscriber sheet, and they have just signed a legal commitment to deposit Rs 10 lakh of their own money into the company within 180 days. The reassurance was true about the ceiling. It was silently false about the line next to it.

There is no minimum to protect you from the other direction, either, which is the useful half of the rule: the minimum paid-up capital requirement was abolished in 2015. A private limited company can be incorporated with Rs 1,000 actually paid in. Keeping subscribed capital small while authorised sits higher is legitimate, common, and the sensible default.

“But won’t I pay stamp duty twice if I start low and raise it later?”

This is the standard objection, and the answer is no, and the arithmetic is worth seeing because most advice gets it wrong in the other direction.

Stamp duty on a capital increase is charged on the increase alone, and MCA fees on an increase are charged on a differential basis (the fee on the new total minus the fee on the old). Worked through in Delhi, where AoA duty is 0.15% (state-wise stamp duty):

Route	Duty paid
Incorporate at Rs 10 lakh authorised	0.15% of 10,00,000 = Rs 1,500
Incorporate at Rs 1 lakh, raise to Rs 10 lakh later	Rs 150 now + Rs 1,350 later = Rs 1,500

Identical. Starting low is not cheaper in duty and starting high is not wasteful in duty. What starting low costs you is one process later: a shareholders’ resolution under Section 61, Form SH-7 within 30 days, and the professional time around both. So the practical advice is: set authorised capital low because most companies never need to raise it, and if you genuinely expect a priced round within a few months, setting it higher now saves you a filing at no duty penalty.

Three ways to put money in, only one of which is what most founders mean

When a founder says “I want to add Rs 10 lakh to the company”, they usually mean working capital, and there are three legally distinct ways to do it:

1. Issue shares within the existing ceiling. If authorised is Rs 1 lakh and paid-up is Rs 25,000, there is Rs 75,000 of headroom. No stamp duty on the memorandum, no SH-7. File PAS-3 (return of allotment) within 30 days.
2. Raise the ceiling, then issue. The full Section 61 process above, plus differential duty and fees.
3. Lend it as a director’s loan. No stamp duty, no allotment, no MCA filing. It sits as a liability, it must come from the director’s own funds, and it needs a written declaration to stay outside the deposit rules. For working capital, this is very often the right answer, and founders routinely issue themselves shares by mistake instead.

One more line that surfaces on nobody’s quote: issuing shares attracts stamp duty on the share certificates themselves, roughly 0.1% of value in most states, due within 30 days of allotment, whether or not the ceiling moved.

The general lesson

A simplification that makes an obligation look lighter is not a simplification, it is a liability. “Authorised capital is not real money” is the kind of half-sentence that saves a paragraph of explanation and occasionally costs a founder ten lakh rupees. The two sliders on our incorporation flow are separate for exactly this reason: one sets your fees, the other sets what must reach your bank account within 180 days, and the form tells you both numbers before you file, not after.