This article will focus on two main aspects – what are authorised shares and how to calculate authorised capital. Apart from these two, here are points you need to keep in mind while trying to understand this concept better. Here they go.
The authorised capital is the value the company has to be incorporated in India. It defines how much equity has been subscribed by the shareholders at the time of incorporation and hence can vary from company to company depending upon the number of shares issued to the public or the promoter’s family members.
What Is Authorised Capital?
The authorised capital is the amount of money a company needs to start a new business. This can be raised by either an individual or a group of people. The company then decides how they want to use the funds, including investing, operating costs, and other expenditures.
A private limited company is one of three types of companies that can be set up and has 1-50 shareholders who are not liable for any losses unless they are personally responsible under the Companies Act 2013. The amount varies depending on whether it’s a trading or non-trading company.
What Can It Be Used For?
The authorised capital is the sum of money with which the company starts its business. The initial amount of money will be divided into shares sold to investors, who then become shareholders and owners of the company.
The only exception is when a proprietor simultaneously starts a business as he becomes both shareholder and owner. The authorised capital must not exceed ₹50 lakhs, or else it has to be registered with RoC and has obtained a certificate from RoC stating that they have complied with all requirements related to commencement of business.
It can make the payment in cash or through a bank draft or cheque payable on demand, but if it is paid through cheques, it must be cleared before applying for registration.
When Does an Entrepreneur Have to Consider Authorised Capital?
The private limited company is one of the most popular forms of business in India. The rules governing this type of business are set out in the Companies Act, 2013. You need at least one member and authorised capital to form a private limited company.
The authorised capital is essential when forming a company because it sets out how much money can be raised by issuing shares with different rights attached. The idea behind this mechanism is that the members who invest in a company should have some say in its management and its aims. This can help prevent disagreements or power struggles between members over time and ensure that no single person has too much control over the company’s direction.
What Are the Different Types of Authorised Capital?
The types of authorised share capital are the nominal value of shares, the number of shares, and the par value. Nominal value is the amount a share would cost if bought from a company. The number of shares is how many shares there are in a company. A par value is an assigned monetary value given to each claim.
How Does One Raise Authorised Capital?
Two ways to raise increase in authorised share capital are by issuing shares or by private placement. A company will issue shares when it wants other people to invest in its business, and the shareholders will have voting rights on major decisions. When a private placement is used, the investors will not have any voting power, but they will be able to receive dividends.
Suppose one wishes to raise authorised capital through a private placement. In that case, one must adhere to the regulations set out by SEBI (Securities Exchange Board of India) and comply with specific provisions for raising funds in particular industries or sectors. For more information on how you can raise authorised capital, please get in touch with us today!
Why Should You Choose This Route Instead of Share Capital or Preference Shares When Raising Funds From Equity Investors?
Share capital and preference shares are the most popular forms of raising funds from equity investors. However, a third option is becoming increasingly popular: authorised capital. What are the main benefits of this form of financing?
And what are the risks involved? There are many advantages to using this form of financing regarding company formation. For starters, authorised capital doesn’t have any voting rights attached (unlike share capital or preference shares), so your founders maintain complete control over decision-making.
It also gives you more flexibility when it comes time to distribute dividends- the board can decide on how much money goes into tips versus reinvestment in the business, which can help keep cash flow positive even in lean times. Finally, you don’t need as much money upfront when registering your company with authorised capital as opposed to other forms of fundraising because you’re only raising the amount per person.
How Do You Decide How Much Authorised Capital to Raise?
Authorised capital is the amount of money you are allowed to raise from investors and lenders. The official capital also sets an upper limit on the company’s liabilities. As a result, it can significantly impact how much cash you need and what kind of debt financing you can seek. If you are starting, it makes sense not to raise too much in authorised capital because this will restrict your options for raising funds in the future.
On the other hand, if your business has been successful so far or there is a chance that it will be profitable shortly, raising more authorised capital may be better as it gives you more opportunities and flexibility when seeking funding.
Can You Give a Practical Example of Where You May Have Needed/Could Have Used This Concept in Your Daily Life?
As a small business owner, I have often found myself in a situation where I am looking for funding from external sources. This is because of my personal belief that it is better to be self-reliant than reliant on someone else.
However, this can sometimes be difficult, and it can take time to find the right investor. I have looked at solving this problem by seeking out private investors willing to provide me with funding for shares in my company.
To do this, though, I need to know how much of my company they will own, what percentage of voting rights they will have, etc.
Conclusion
The first and foremost thing you need to remember when you are looking to start a Private Limited Company in India, whether it’s the first time or you have been there before, is that you must never forget to check your minimum authorised Capital requirements that the Ministry of Corporate Affairs (MCA) has mandated with regards to starting up your new Private Limited Company. Get in touch with Vakilsearch for more information or help in this regard.
