All companies, regardless of their organisational size and structure, requires a specific share capital. These are the part of several financial statements that the company is obliged to process and submit yearly.
There is a spike in the number of new company registration in India during the first two quarters of the financial year. The latest data from the MCA (ministry of corporate affairs) shows that the number of companies incorporated during April to December 2020 went up to almost 21% to over 1.1 lacs compared to a mere 5.2% increase witnessed during the corresponding nine-month period in 2019.
While the companies act, 2015 expelled the requirement for minimal paid-up capital, when you register a company in India, you are obliged to have needed authorised share capital for company registration. Also, let us now dig deep into the authorised share capital requirements for the company registration and the distinction betwixt authorised capital and paid-up capital.
What constitutes the capital structure of the company?
It can be divided into two categories.
Authorised share capital.
It is the maximum portion of the capital which the company might issue shares to its promoters or shareholders. The company registration’s authorised share capital is a part of its MoA under the capital clause. This is generally determined before the incorporation. Nonetheless, companies do have the option of infusing their authorised share capital in future by following specific steps.
For example, assume a company named BCD, Pvt Ltd, has an authorised share capital amounting to Rs. Nineteen lacs and has issued share for Rs. 14 lacs. Similarly, it can issue shares for Rs. 4 lacs in such scenarios without raising or altering its initial authorised share capital; nonetheless, once it goes beyond Rs. Nineteen lacs will be required to increase its authorised share capital before it issues any more shares to its shareholders and benefactors.
Paid-up share capital.
It is the amount for which the company issued shares to shareholders once they have made the requisite payment to the company. Also, for any company at any given time, paid-up capital should either be less than or equal to its authorised share capital. The company cannot issue shares beyond its authorised share capital threshold. Also, paid-up capital should be deposited in the company’s account within one month of allocation of the shares. Due to the enactment of the companies amendment act, 2015, there is no longer a minimum capital requirement needed for the private limited company.
Likewise, there is no minimum paid-up capital requirement for a private limited company either, as they might be established with even Rs. 1000 as paid-up capital. Also, to change the minimum paid-up capital for a company, the registrar of the company should be updated, and the data concerning update becomes part of the companies master data.
It is the part of the paid-up capital or issued capital that the shareholders have agreed to contribute via payment. As a result of that partial commitment, the shareholders will only be liable for the unpaid amount on the shares subscribed.
Can the issued capital exceed the authorised capital?
Before initiating any company, public or private, the promoters and investors require to determine its authorised share capital amount as the authorised share capital limit sets up how many shares, they would receive due to their investment in the company. Also, outstanding or issued shares are shares that the company has issued to its shareholders. That’s why since the authorised capital sets the limit for the value of such shares, the paid-up or issued capital can never go beyond the authorised share capital.
How can the authorised share capital be raised?
The MCA (ministry of corporate affairs) charges or levies the fee amounting to Rs. 5000 to grant a minimum authorised capital of Rs. one lac to the private company. To add more authorised capital, the shareholders are obliged to pay an additional fee as given below in the table;
How can start-ups raise authorized capital?
Many start-ups are bootstrapping and running low on cash nowadays. Thus, they are not in a position to pay hefty amounts to raise their authorized share capital during incorporation with the MCA. Therefore, as a result, many promoters end up paying the minimum needed authorized share capital of Rs. one lac. That’s why they issue shares worth only that amount to their shareholders or founding members. Also, other capital invested is in the form of either an unsecured loan or as the share premium.
Also, this helps them to minimalize the need to increase authorized share capital during the early stages of their company. Nonetheless, once the company enlarges and needs debt or equity, they raise the share capital limit to issue more shares. Thus, most start-ups initially start with minimum required share capital for private companies and slowly raise the limit as and when needed.
Authorised share capital registration fees
Authorised capital and name of the company.
The deployment of specific terms requires additional charges to authorised share capital. Here is the table given below;