The idea of starting a new business attracts one more question – How much amount of share capital should be introduced? This does not bar the promoters who are looking for Online Company Registration as well. The promoters are always puzzled about the minimum capital requirements for private limited company with share capital. The business that demands infusing higher amount of capital can be planned easily as per the requirement.
The struggle starts when the proposed business requires involvement of nominal amount. Here, there is always a question on what amount of capital should be included, especially when funds are scarce for the co-founders.
Therefore, we shall now discuss on what is the minimum amount required for starting a private limited company and in which manner capital shall be introduced. Indian Companies Act, 2013 prescribe the minimum share capital for private company registration. Where the minimum criteria are provided to keep Rs 100,000 as Authorised Capital, the requirement of minimum paid-up capital is removed by said Act. Before registering a company, it is in the interest of the promoters to know about these two terms and types of capital.
Let us first discuss the meaning of terms used for the classification of capital in any company.
The capital of the company is classified in three categories being: Authorised Capital, Subscribed Capital and Paid-up Capital.
The Authorised Capital of a Company is the total amount that a company can raise by issuing of shares during registration and post incorporation.
- The Authorised Capital of any company is mentioned in the Capital Clause of Memorandum of Association of the company.
- The company, during its lifetime, cannot raise capital by issuing the shares exceeding the said amount.
- As discussed above, the Companies Act requires keeping Rs 100,000 as authorised capital for online private limited company registration in india. The capital of Rs 100,000 can be divided into 10,000 shares of Rs 10 each.
The Authorised Capital can also be increased any time after private ltd registration by following the procedure laid down by the Act. The authorised capital is considered to decide the stamp duty payable to register pvt ltd company and Government Fees payable for any application or form to be filed by the company. Therefore, advisable is not to keep unnecessarily higher Authorised Capital in your company, as it can be changed in future.
During its existence, a company can raise capital from multiple sources by issue of shares. The shares that are issued to offer for subscription and allotment are referred as Issued Share Capital of the company. The person/entity being addressee of the said issue owns right to subscribe the shares.
It is to be noted that the total amount of shares to be issued and already issued shall not exceed the amount of Authorised Capital provided under Capital Clause of Memorandum of Association (filed while online company registration or as amended afterwards.)
The subscribed capital of the company is a part of issued capital for which the shareholders of the company have agreed to contribute the amount.
The members (shareholders) of the company shall be liable only for the unpaid amount of capital on Shares Subscribed and owned.
This refers to actual amount deposited in company’s pocket. The paid-up capital of the company refers to the amount for which the calls are made by the company and also paid by the shareholders. The amount of paid up capital is reduced from the total liability of the members towards the company.
The Companies Act does not provide any minimum amount of paid-up capital that needs to be introduced in a Private Company. However, the promoters shall invest the capital in such a manner that it is sufficient to commence and run the business.
The amounts to be declared during the process of online registration of a private company are both the Authorised Capital as well as paid-up capital. The promoters of the company shall mention the authorised capital as minimum 1 Lakh irrespective of amount of paid up capital to be decided.
The question now arises what should be the amount of paid-up capital of the company?
The paid-up capital can range from Rs 200 to Rs 80,000 or so on. It is up to the promoters’ discretion. As mentioned, it should be sufficient enough to fuel the company for its initial stage. Expenses after rent or ownership of business place, hiring human resource, purchase of hardware and assets etc. should be planned.
While deciding the amount of Paid-up capital of the company, it must be considered that the said amount shall be deposited in the account of the company within the 30 days of issuance and allotment of shares. Therefore, the amount to be paid shall be divided in such manner that shareholder are able to deposit the amount in account. If additional capital is required, it can be again raised by the company.
This set up of capital could be easier for you to understand by an example here:
- Authorised Capital – Rs 100,000/- and amount to be introduced by promoters is Rs 60,000/-.
In given case, the company can raise capital by following any of these scenarios:
Here, the company can issue 6000 shares of Rs 10 each as fully paid to the proposed shareholder. Under this option, if the company wants to raise more capital at a future date, it shall follow the procedure of issuance and allotment of shares.
The company can issue 10,000 shares of Rs 10 each to shareholders. However, in this case, the call can be made for Rs 6 on each share, which shall ultimately amount into Rs 60,000 (10,000*6). It is notable than the company has an option to call Rs 40,000 more from the existing shareholders for same shares issued. The amount of Rs 40,000 can be called at once in future or in any proportion thereof.
The amount of capital required to be infused in a company depends on the nature of business and requirement of the operations. When any confusion arises in this regards one can always consult an expert to resolve the queries. Feel free to reach experts at LegalWiz.in on toll-free number 1800-313-4151 or at firstname.lastname@example.org to register Private Limited Company or to increase share capital.