when a company wants to raise equity it cannot simply sell off pieces of the company to the highest bidder businesses must request permission to issue public shares by filing an application with the agency responsible for the registration of companies in the country of incorporation in the united states companies wanting to go public must register with the securities and exchange commission sec before issuing an initial public offering ipo 1
the maximum amount of capital a company is given permission to raise via the sale of stock is called its authorized capital typically the amount of authorized capital a company applies for is much higher than its current need this is done so that the company can easily sell additional shares down the road if the need for further equity arises since paid up capital is only generated by the sale of shares the amount of paid up capital can never exceed the authorized capital importance of paid up capitalpaid up capital represents money that is not borrowed a company that is fully paid up has sold all available shares and thus cannot increase its capital unless it borrows money by taking on debt a company could however receive authorization to sell more shares a company s paid up capital figure represents the extent to which it depends on equity financing to fund its operations this figure can be compared with the company s level of debt to assess if it has a healthy balance of financing given its operations business model and prevailing industry standards 