Share Capital

What is the Minimum Share Capital Required For Private Company Registration In India

Starting a business requires utmost proficiency and knowledge in the relative field. Know about the minimum share capital for starting your own private company in India.

Every person in business faces apparent confusion while deciding about minimum share capital for their company. It comprises online business registration as well. Therefore, you need to clearly understand the same before building your own startup. It will help you to avoid losses and maintain legal transparency in your work.

Firstly, you must consider the various points about minimum share capital mentioned in the Indian Companies Act 2013. For example, it enumerates that the authorised capital of a private startup company should be at least ₹1,00,000. However, there are no provisions related to minimum paid-up capital requirements in the Act.

The promoters of the company should consider the matter seriously and get practical guidance from experts. The updated details need to be clearly understood by you and your associates before you engage in your startup business. The decision of minimum share capital for a private business also involves legal considerations. Therefore, you must know about the different types of capital required for running a successful business.

What Is Minimum Share Capital?

Many tend to confuse the minimum share capital and investment options. For example, when you wish to start a company, you need to arrange for a minimum investment from your promoters, which will clearly establish your business capacity. The amount is known as minimum share capital. On the other hand, investment options will include the investors who wish to contribute to your company for better profits in the long run.

Types Of Capital In Startup Businesses

To understand the legal obligations related to your startup business, you must know about the various types of capital involved in running a company. It also refers to the multiple allowances and constraints that the Government imposes on the investment options in a startup business. Here are the different types of capital involved in a business:

  • Authorised Capital

    This is the maximum amount of capital a company can raise to have a brilliant start. You must show the amount within the limit during registration and post-incorporation. 

One will get access to the authorised capital of a company in the Memorandum of Association of the company. It is mentioned in the Capital Clause. This is where you will also get access to the details related to the Authorised Capital for your company.

The company cannot gain success with capital investments exceeding the limit of authorised share capital during its lifetime. It is both illegal and unwanted. According to the Companies Act, 2013, you can keep up to ₹1,00,000 as your authorised capital for the company. You can divide it into ten parts of ₹10,000 each.

You can change the Authorised Capital anytime after registration of the company. The amount of Authorised Capital decides the amount for stamp duty during Pvt. Ltd. registration. The amount of tax payable to the Government is also agreed upon on the basis of Authorised Capital. Therefore, it is advisable to keep your Authorised Capital amount as low as possible because you can increase it after the successful registration of the Company. Keeping it low will enable you to decrease the amount of tax payable.

  • Subscribed Capital

    Subscribed Capital is referred to as the part of capital issued by various investors in a company. It is that part of the capital for which the shareholders have agreed to contribute all together. Therefore, the investors or shareholders are liable to pay only the unpaid amount of the Subscribed Capital, which the company owns.

  • Paid-up Capital

    Paid-up capital refers to the actual amount of capital that the company can demand from its shareholders for successful profit maximisation. The investors also unanimously agree to pay this amount, and it is generally less than that of the total liability of the company members. 

The Companies Act, 2013 does not mention any particular limit for the Paid-up Capital of a company. However, it is a convention that the amount should be such that it is sufficient to run the business for receiving the maximum profits.

While registering your company, you must mention the amounts of both the Authorised Capital and Paid-up Capital of your company. While the Authorised Capital needs to be under ₹1,00,000, there is no limit on the Paid-up Capital.

What Should Be the Amount of Paid-up Capital?

The Paid-up Capital should be a sufficient amount that the Company can utilise for its initial working system. It is the decision of the promoters of a company to finalise the amount. It can range from ₹200- ₹80,000 (as per conventions). It would be best if you planned the company expenses like rent, technological advancements, ownership issues, and so on.

It would help if you remembered that the amount of Paid-up Capital needs to be deposited by the company investors within 30 days of the issuance of shares and their allotment. Therefore, plan out the amount in such a way that the shareholders can pay the amount almost immediately. You can also raise additional funds for the company once you start operation.

  • Issued Capital: While successful working, a company can take up capital from various sources of income by way of shares. This amount is known as the Issued Capital of the company. The shareholders can successfully subscribe to a part or whole of the Issued Capital. The amount generated is known as the Issued Share Capital of the company. The person to whom the issue is addressed has the right to own the subscription of those shares.

You must remember that the total amount of Issued Capital cannot be more than the Authorised Capital of your company. The Memorandum of Association clearly mentions in its Capital Clause that the amount of Issued Capital can never exceed the Authorised Capital. Get a clear idea of the same while you file for your company registration.

Detailed Illustration With A Valid Example

Let the amount of Authorised Capital be ₹1,00,000, and Paid-up Capital be ₹40,000. Then, the ways by which the company can raise capital are as follows:

  1. The company can issue 4000 shares of ₹10 each and fully pay them to the authorised shareholders. If you want to increase the shares and capital, you can arrange for it by issuance and allotment of shares.
  2. The company can issue 10,000 shares, each of ₹10. You can call for up to  ₹4 for each share which will add up to ₹40,000 (as per the Paid-up Capital). In this situation, you can ask for ₹60,000 more from the investors and level the shares according to your authorised capital. It can be done slowly and steadily to ensure definite success.

End Note To Understand Minimum Share Capital Calculations Better

Deciding on the minimum startup range mainly depends on the nature of your business and the types of interested investors. Of course, having a large sum accumulated for your business can never go wrong. But here you need to know about the minimum requirement. It generally varies according to the type of business and Government regulations from time to time. Consult with an expert at Vakilsearch to learn more about the details of minimum share capital. Then, expand your business under the guidance of the correct regulations.

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