Everyone wants to jump into the ocean of entrepreneurship, every start-up and existing business entity intends to register themselves as a private limited company. The primary reason behind that pull factor is that it has minimal eligibility criteria and requires less documentation. It is a myth that registration for private limited requires enormous investment.
Here, we will discuss the minimal paid-up and authorized capital necessary to initiate a Pvt Ltd Company Registration. Still, before going into that, we should be aware of the private limited company’s basics.
Defining private limited company.
It is one of the predominant business forms in India. In India, approximately more than 90% of the companies are registered under the private limited company. These companies are governed and incorporated under the companies act, 2013 by the ministry of corporate affairs (MCA). Entrepreneurs who intend to operate their business entities both as a partnership and public limited company chooses to register their entities as private limited due to its commonality and benefits it offers to them.
Shareholders and directors of the private limited company can boost the business’s credibility by conducting its operations according to their own volition. The dividend, which is the profit it earns, is to be divided among the members. Desideratum for the minimal paid-up and authorized capital to initiate a private limited company is given below.
Eligibility.
Numbers of directors – it needs a minimum of two and a maximum of fifteen.
Shareholders numbers – it needs a minimal two and a maximum of 200. Nonetheless, one person can perform duty as both shareholder and director.
Citizenship – a private company, can recruit a foreign director. Nonetheless, one of its directors has to be an Indian citizen.
No minimal capital desideratum – back in the times, minimal capital for incorporating a private limited company was Rs. 1 lac in India. Nonetheless, after the amendment in the companies act, 2015, this barrier was expelled.
Authorized capital for private limited company.
Authorized shares or authorized capital are the numbers of the maximum shares that a company can issue to its shareholders. The company has to lay down its approved money in the memorandum of association and AOA’s importance during its incorporation.
Fees that the government charges for authorized capital.
Ministry of corporate affairs (MCA) sanctions the amount of Rs. 500 for minimal authorized capital of Rs. 1 lac. If the company increases the authorized capital, then charges by the MCA will be accordingly.
Paid-up capital for the private limited company.
On the one hand, paid-up capital is the part of authorized capital that expresses the company’s issued number of shares to its shareholders. For instance, the company stated its authorized capital (max. amount increased by the issuance of shares) of Rs. 10 lacs during the incorporation. Still, it increased by nine lacs from its claims, then it is paid-up capital will be only Rs. 9 lacs.
Two sources for paid-up capital for private limited companies.
At par value of the shares.
This is one of the preferred sources of paid-up capital for the private limited company. In such a scenario, stocks/shares of the company are issued at par value. The stock’s fixed basic value is stated in the company’s guide to amend MOA during its incorporation. It can also be referred to as a face value or nominal value of the share.
Discount/premium value of stocks.
In India, private limited companies can also infuse funds through the issuance of shares or stocks at a premium or discount on their par value. For instance, the company issues its shares with the par value of Rs. 20 at Rs. Forty, which means it would be taken as premium shares. While at the other end if the company issues a claim at Rs. 14, whose par value is Rs. 20, then it would be taken as a discounted share.
Usually, companies prefer to issue shares at a discount when companies lack the capital to carry out their business operations and urgency of money. Especially when the company is mounting under the losses. While on the other hand, companies prefer to issue at premium value when they are earning profits, and there is a demand in the scanty number of shares.
Attributes of paid-up capital.
No compensation for shares.
It is the primary attribute of paid-up capital. This describes that once the investor purchases share and invests in the company, then they do not have to pay again for shares they have already acquired via purchase. They do not have to buy-back their claims in the future as well.
Keeping balance sheet up to date.
Paid-up capital has to be jotted down in the company’s balance sheet. Further, it is recorded under the equity of the shareholder. And paid-up capital can also be recorded separately for each source mentioned above. Equity that has been generated by the issuance of shares at par value recorded under the ‘common stock paid-up capital’ and shares issued at a premium or discounted value recorded under ‘additional stock paid-up capital’ accounts.
Primary analysis.
Paid-up capital aids the company to ascertain whether its equity is more than its debts or not. If equity is more than the company’s obligations, it signifies that its debt-equity ratio is lower. This means the company is less reliant on debts and more dependent on its equity. Hence, the company would try to maximize its paid-up capital to lower its debt-equity ratio.
Immense costs.
The cost involved in the maintenance of paid-up capital is expensive because if investors invest in the company, they need some chunk of share from its profit in dividends. As a result of that, dividends’ payment or non-cash benefits are expensive for the company.
Importance.
Paid-up capital is the amount of money infused by the company by the issuance of all its shares. The more the paid-up capital means the less reliance on debts and enabling hassle-free GST return online filing. A private limited company that is known as a wholly paid-up capital company is the company that has issued all its shares. Now it infuses its capital by surpassing its authorized capital threshold or via debts.
Paid-up capital figures in the balance sheet of the company explain the company’s health in the market. It demonstrates how much extent the company is relying on the equity for its financing. Here, the level of equity will be compared to the debt level to explain its financial condition.
Minimal paid-up capital to initiate a private limited company.
According to the companies act, 2013, the minimal paid-up capital to initiate a private limited company was Rs. 1 lac. Still, afterward, it has been amended in 2015, which states that there is no such minimal threshold of paid-up capital to initiate a private limited company. However, the authorized capital of minimal Rs. 1 lac is still compulsory to initiate the company.
In conclusion.
Thus, our thinking regarding the huge investments in initiating the private limited company is a mere myth. The government has been making entrepreneur-friendly schemes to support them and to develop the economy of the country. With the government’s support, private limited companies can grow more efficiently than ever before.
