Importance of the paid-up capital

The paid up capital shows the strength of the company internally. As the paid up capital is usually internally generated and not borrowed a higher paid up shows the strength of the company from the inside- the shareholders contribution as against a company with high external borrowing - that shows higher gearing and risk.

Thus, in short a company with lower gearing is much more safe and stable in the long run compared to a company with a higher gearing ratio