In this article, you will get to know about the share capital for company registration. Read on to know more.
Share capital is the value of the shares of a company and plays a vital role in determining if and how the business can expand its activities.
The authorized capital of a private limited company refers to the highest value of shares that can be issued to shareholders, whereas issued shares, also known as outstanding shares, represent the actual number of shares that have been allocated to the shareholders by the company.
When you register your company, you will have to decide how much share capital you want to be issued with – Authorised share capital (ASC). The ASC can also be referred to as authorized capital or authorized shares, but we’ll use it here as it’s the most common way of referring to it.
1) What Is Authorised Share Capital?
A company’s authorized share capital is the number of money investors has agreed to invest in the business. This is called equity, and it’s expressed as several shares. When registering your company, one of the first steps is to determine how much initial equity your investors will be contributing.
You need this information to apply for an Australian Business Number (ABN). In addition, if someone has invested more than ₹5,000 in equity, they’ll need to complete a statutory declaration confirming their investment.
2) When Do I Need It?
Authorized share capital is the amount of money a company can use to buy shares. It’s a legal requirement when registering a business and sets the framework for what you can do in the future with your profits.
Authorised share capital is typically set at ₹50,000 or more, but this varies depending on the company’s registration type. In addition, companies are required to have enough cash to cover dividends that it may pay out in future years.
If they don’t have enough cash, they must get an investor who agrees to cover the shortfall. Then, the shareholders decide how much money should go towards authorized share capital before any other expense.
3) What Does It Include?
In South Africa, companies must have at least two shareholders and one director. Shareholders are the people who purchase shares in the company and own a percentage of the company based on how many shares they own.
A Director is a person who governs the day-to-day operations of the company. The money that shareholders invest into a business is called share capital. If a shareholder invests ₹100 000 into a business, they own 100% of that business – this is called Authorised Share Capital.
4) How Many Shares Can I Issue?
Companies can issue one class of shares or more. If a company gives more than one class of shares, each type is a different series and must be recorded in the company’s Articles of Incorporation.
There is no limit to the number of series a company can have, but their rights and restrictions must differentiate them. For example, one series could have dividends at a fixed rate while another has tips that are only paid if profits exceed set targets.
5) How Many Can Other People Hold?
The total number of shares that can be allotted to a company is determined by the amount of its authorized share capital. The number of shares a person may hold in a corporation depends on their classification as either a shareholder or director and their membership in the group known as insiders. Shareholders are classified as those who hold common shares.
Directors are those who hold either Class A or Class B shares, which gives them more voting rights than shareholders who only have common shares. Common shareholders are those with less than 10% ownership in the corporation and generally have no say in matters such as appointing directors and executive officers. Insiders include directors, executive officers (i.e., president), and anyone else holding at least 10% ownership of voting stock in the corporation.
6) Can I Change My Authorised Share Capital After Registration?
The good news is that you can alter your authorized share capital after the initial registration, but it does come at a cost. You need to get written consent from all shareholders who have not consented in writing to the alteration.
- Send an application to Companies House with all relevant information, including the written consent and evidence of agreement from all shareholders, plus any other documents required by law
- Pay the appropriate fee
- Wait 10 working days before being able to change your registered particulars
- If a member has made an objection and they are not one of the original members, you must send them a copy of your application.
7) Do I Need to Use My Entire Authorised Share Capital Immediately?
This is not the case. When a company registers, it is permitted to issue new shares to raise funds before submitting all its authorised share capital. Therefore, issuing new shares up to twice your total authorized share capital is possible. It can do this through an equity crowdfunding campaign or by giving bonus shares as a one-time event.
To issue bonus shares, it must submit an additional form with the Registrar of Companies outlining that there are no current shareholders entitled to object and it is in the best interests of the company and its shareholders.
8) Can I Have More Than One Class of Shares?
The answer is yes. You can have more than one class of shares, but the classes need to be entirely different and have different rights attached. For example, classes of claims might be Class A and Class B, with Class A having a voting right and Class B not.
To learn more about how this might work in practice, read our blog post on registering your company online. Authorized Share Capital means the total number of shares in a company that a qualified person or entity has issued.
It’s essential to keep Authorised Share Capital up-to-date while managing a Company because it affects ownership percentages.
9) What Are the Costs Involved in Issuing My Shares?
An issuing corporation issues company shares. The issuing corporation may be a newly-formed corporation or an existing corporation.
The issuing corporation must set up the appropriate legal framework to issue shares, and in most cases, this will involve establishing a share registry and directors’ rights plan.
Issuing shares is not free; there are costs involved with setting up the necessary infrastructure and legal documentation required to issue new shares and transaction fees when the stakes are sold on the market.
10) Who Needs to Sign My Articles if No Director Is Named in Them?
Your articles need to be signed by the incorporator, or if there is no incorporator, by two directors.
Finding someone willing to serve as an incorporator and sign your articles without compensation can be challenging. Incorporators are often friends or family members of the entrepreneur who want nothing but the best for them.
Two directors may sign if you can’t find someone who will act as your incorporator.
Conclusion
Articles may also be made where one director appoints a second director. The appointing director must sign the papers first, and then they are submitted to the appointed director, who signs them both and returns them to the first director for submission to Companies House. You can contact Vakilsearch for more information and understand the share capital.
Also, Read:
- Tips and Strategies Authorised Share Capital
- Private Limited Company Share Issuance
- How Authorized Share Capital Works?
