Minimum Paid Up Capital for Private Limited Companies
Private Limited Companies are becoming a preferred format of the constitution for businesses, especially in this start-up era. The Ministry of Corporate Affairs is the apex body for governing and laying down laws for the companies in India. While private limited company registration is not a difficult task, most people ask a question i.e., what is the minimum capital required for private limited companies?
Minimum Capital Required for Private Limited Company
Currently, there is no requirement of minimum paid up capital for the incorporation of private limited companies in India. Earlier, the minimum paid up capital of Rs. 1,00,000 was required for incorporation of a private limited company that has now been removed.
Other conditions for the incorporation of private limited companies include:
- Number of Directors: There shall be a minimum of 2 directors and a maximum of 15 for incorporation of a private limited company.
- Number of Shareholders: There shall be a minimum of 2 shareholders for incorporation of a private limited company.
- Indian Director: The private limited company should have at least one director who is resident in India.
Characteristics of the Paid-Up Capital of the Companies
Paid up capital is not just the capital for the company but it carries various important features. These include:
- Voting Rights: Equity shares of the company carries voting rights. In case of any resolution that is presented for approval of shareholders, those who hold equity shares will be eligible to vote.
- Ownership of the Company: Shareholders are the owners of the company. Therefore, holding share capital signifies the ownership in the company in proportion to the number of shares held by the shareholder.
- Dividend & Other Rights: Dividends are paid to the shareholders from the profits of the company. Further, various other benefits like bonus issues, right issues etc. are provided by the company to the eligible shareholders.
- No Repayment: Share capital has no repayment due date. Until the company is liquidated or it decides to buy back its shares, there is no obligation on part of the company to repay the amount of share capital raised from the shareholders. However, the shareholders can sell their shares to other shareholders or any other person.
Classification Share Capital of the Company
Following is the classification of the share capital of the company:
- Authorised Share Capital: It is the share capital that the company is authorised to issue. Authorised share capital is specified in the capital clause of the Memorandum of Association. In case the company wants to issue share capital more than the authorised share capital, then it can do so by altering the capital clause of the memorandum of association.
For instance, a company is authorised to issue a total of 5,00,000 shares with a face value of Rs. 10 each. Therefore, Rs. 50,00,000 shall be the authorised share capital of the company.
- Issued Share Capital: It is that portion of the authorised share capital that has been issued for the public to subscribe. The remaining portion of the authorised share capital is known as unissued share capital. Suppose, the company issues 3,00,000 shares to the public. Therefore, Rs. 30,00,000 shall be the issued share capital of the company.
- Subscribed Share Capital: The amount of share capital that has been subscribed by the people out of the issued share capital is known as subscribed share capital. Suppose, out of 3,00,000 shares issued by the company, 2,50,000 shares have been subscribed by the public. Therefore, the subscribed share capital shall be Rs. 25,00,000. It is usually the same as the issued share capital of the company.
- Called-up Capital: It is not necessary that the entire value of the shares is called at once by the company. The amount of the value of shares that the company has asked the shareholders to pay is known as called-up capital. The remaining amount that has not been called is known as uncalled capital. This may be called up by the company at any time in the future as per the fund requirements of the company.
For instance, for 2,50,000 shares issued to the public, the company only calls Rs. 4 per share. Therefore, the called-up capital shall be Rs. 10,00,000 (2,50,000 shares * Rs. 4 per share). The remaining Rs. 15,00,000 shall be the uncalled share capital.
- Paid-up Share Capital: The amount of share capital that is paid by the shareholders out of the called-up capital is known as paid up share capital. For instance, out of Rs. 4 called up by the company, a shareholder who has subscribed for 6000 shares pays only Rs. 3 per share. Therefore, the paid-up share capital, in this case, shall be Rs. 18,000 (6000 shares * Rs. 3 per share).
In a Nutshell
If you are undertaking a private limited company registration in India, then it is important that you decide upon the share capital considering your future needs as well. Most importantly, ensure that your Articles of Association contain a provision authorising the alteration of the object clause of the memorandum. This will ensure that you can easily increase your authorise capital as and when the scale of operations increases. As you have to disclose the amount of authorised share capital in MOA as well as while doing private limited company registration online, it would be better to decide on the capital and shareholding pattern before you proceed with the registration.
Author : Dipen
Date : 12-Jul-2022