Company IncorporationShareholders’ Agreement

What is Meant by Authorized Share Capital?

All companies, irrespective of their organisational structure and size, will have a specific share capital. These are a part of the various financial statements that the company has to process and file annually.

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There is a massive spurt in the number of new company registration in the country during the first nine months of the financial year.  The latest data available with the Ministry of Corporate Affairs (MCA) showed that the number of companies incorporated during April-December 2020 went up by nearly 21% to over 1.1 lakhs, compared to a 5.2% increase witnessed during the corresponding nine-month period in 2019.

While the Companies Act, 2015 removed the requirement for minimum paid-up capital, they still have to have the required authorised share capital for company registration. Further, let us now take a look at the authorised share capital requirements for company registration, and the difference between authorised capital and paid-up capital. 

What Makes up a Company’s Capital Structure?

A company’s capital structure can be divided into two categories:

Authorised Share Capital

Authorised share capital is the maximum portion of the capital for which the company may issue shares to its shareholders or promoters. The authorised share capital of company registration is a part of its memorandum of association under the capital clause. This is usually decided before incorporation. However, companies do have the option of raising their authorised share capital in the future by following specific steps.

For instance, imagine a company named ABC Pvt Ltd has an authorised share capital amounting to ₹20 lakhs and has issued shares for ₹15 lakhs. Likewise, in such a case, it can issue shares for ₹5 lakhs without raising or changing its initial authorised share capital. However, once it exceeds ₹20 lakhs, it will have to increase its authorised share capital before it issues any more shares to its benefactors and shareholders. 

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Paid-up Share Capital

Paid-up share capital is the amount for which the company issued shares to shareholders after they made the necessary payment to the company. Moreover, for any company at any given time, the paid-up capital must either be less than or equal to its authorised share capital. Also, the company cannot issue shares beyond its authorised share capital limit. Additionally, the paid-up capital must be deposited in the company’s account within 30 days of allotment of the shares. Due to the enactment of the Companies Amendment Act 2015, there is no longer a minimum capital requirement for a private limited company

Similarly, there is no minimum paid-up capital of a public company either, as they may be formed with even ₹1000 as paid-up capital. Further, to change the minimum paid-up capital for a company, the RoC must be updated, and the data regarding the update becomes a part of the companies master data.

Subscribed Capital

Subscribed capital is a part of the paid-up capital or issued capital that the shareholders have agreed to contribute through payment. As a result of partial commitment, the shareholders are only liable for the unpaid amount on the shares subscribed. 

Can Issued Capital Exceed Authorised Capital?

Before starting any company, private or public, the investors and promoters need to decide on its authorised share capital amount. This is because the authorised share capital limit establishes how many shares they will receive as a result of their investment in the company. Further, Issued or outstanding shares are the shares that have been issued by a company to its shareholders. Therefore, since the authorised capital sets the limit for the value of such shares, the paid-up or issued capital can never exceed the authorised share capital.

How Can Authorised Share Capital Be Raised?

The Ministry of Corporate Affairs charges a fee amounting to ₹5000 to allot a minimum authorised capital of ₹1 lakh to a private company. To further add more authorised capital, the shareholders will have to pay an additional fee as mentioned below.

S.No Additional Amount Fees Charged
1 The minimum share capital of ₹1 lakh  ₹5000
2 Additional 1 lakh between ₹1 lakh and ₹5 lakhs ₹4000/ lakh
3 Additional 1 lakh between ₹5 lakhs and ₹50 lakhs ₹3000/ lakh
4 Additional 1 lakh between ₹50 lakhs and ₹1 crore ₹1000/ lakh
5 Additional 1 lakh beyond ₹1 crore ₹750/ lakh

How Do Startups Raise Authorised Capital?

Most of the startups that mushroom nowadays are bootstrapped and are short on cash. Hence, they cannot pay large amounts to boost their authorised share capital during incorporation with the MCA. Hence, as a result, most promoters end up paying the minimum required authorised share capital of ₹1 lakh. Therefore, they issue shares worth only that amount to their shareholders or founding members. Additionally, the rest of the capital invested is in the form of either an unsecured loan or as a share premium. 

Further, this helps them reduce the need to increase share capital during the early stages of their company. However, once the company expands and requires debt or equity, they raise the share capital limit to issue more shares. Hence, most startups begin operations with the minimum required share capital for private companies, and slowly raise the limit as and when they start needing debt or equity funding. 

Authorised Share Capital Registration Fees

S.No Share Capital Fee
1

OPC and other small companies with share capital less than ₹10 lakhs

For every additional ₹10,000 after the first ₹10 lakhs and below ₹50 lakhs

2000

200

2 Additionally, registering a company with nominal share capital below ₹1 lakh 500
3

For submitting or registering any document:

Nominal share capital less than ₹1 lakh

Capital is between ₹1 lakh and ₹5 lakhs

If the Capital is between ₹5 lakhs and ₹25 lakhs

Capital is between ₹25 lakhs and ₹1 Crore

Capital exceeding ₹1 crore

200300

400

500

600

4

If the company does not have any share capital:

Share value as per AoA and number of shares falls below 20

Number of shares between 20 and 200

20005000
5 Fee for registering and recording any changes via the Registrar 200

Authorized Capital and the Company’s Name

The use of specific terms results in additional charges to authorised share capital. Here’s a short rundown of the fees for using different terms in the company’s name.

S.No Words in Name Fee Payable
1 Hindustan, Bharat and India within the name ₹5 lakhs
2 Enterprise, Products, Business or Manufacturing ₹10 lakhs
3 International, Global, Universal, Continental, Intercontinental, Asiatic and Asian ₹50 Lakhs
4 Bharat, Hindustan and India as the first word in the name ₹50 lakhs
5 Names beginning with International, Global, Universal, Continental, Intercontinental, Asiatic and Asian ₹1 Crore
6 Corporation anywhere within the name ₹5 Crore

 

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