While the Companies Act, 2015 has got rid of the prerequisite for minimum paid-up capital, the requirement for maintaining a basic authorised share capital is still intact. In this write-up, we shall look at the prerequisites regarding the authorised share capital for company registration along with other crucial details.
What constitutes the Company’s Capital Structure?
A company’s capital structure can be bifurcated into two important categories:
Authorised Share Capital
Authorised share capital refers to the max. portion of the capital for which the firm might issue shares to its promoters or shareholders. The authorised share capital is a part of its MOA under the capital clause. This is generally sorted out before incorporation. But, firms do have the alternative of procuring authorised share capital by the following steps.
For example, suppose a firm name ABC private limited holds an authorised share capital worth Rs 20 lakhs and has issues shares for Rs 15 lakhs. Similarly, in such a scenario, it can issue shares worth Rs 5 lakhs without raising or altering its initial authorised share capital. But, once it surpasses INR 20 lakhs, it will have to escalate its authorised share capital before prior to the issuance of any more shares to its shareholders.
Paid-up Share Capital
Paid-up share capital denotes an amount for which the firm issued shares to shareholders after they made the required payment to the firm. In addition to that, for any firm at any instance, the paid-up capital must either be less than or equivalent to its authorised share capital.
Moreover, the firm is not eligible to issue share shares beyond its authorised share capital limit. Furthermore, the paid-up capital must find its way to the company’s account within 30 days of the shares’ allotment. Owing to the advent of the Companies Amendment Act 2015, the requirement for maintaining a minimum capital requirement for privately-held firms has been waived off.
Likewise, the requirement for maintaining a paid-up capital for the public company has been removed. Now such establishments can be set up with even INR1000 as paid-up capital. Moreover, to modify the mini. paid-up capital for an organization, the RoC must be updated, and the data related to the update becomes a part of the company’s master data.
Subscribed capital refers to a part of issued capital or the paid-up capital that the shareholders have assured to contribute via payment. As a result of partial commitment, the shareholders are only required to pay out the unpaid amount on the share subscribed.
Is it possible for issued capital to surpass the authorised capital?
Before commencing a new company, either public or private, the promoters & investors require to decide on the amount of authorised share capital. This is because the authorised share capital limit decides how many shares they will get against their investment.
Similarly, the outstanding shares are the shared that have already been issued to the shareholders. Henceforth, since the authorised capital establishes the limit for the value of such shares, the issued or paid-up capital can never surpass the authorised share capital.
What is the legal way of raising Authorised Share Capital?
The Ministry of Corporate Affairs, i.e. MCA charges a sum of Rs 5000 to allot a mini. authorised capital of Rs 100000 to a private company. For further augmentation of authorised capital, the shareholders are required to pay a supplementary fee as shown in the table below.
|Additional Amount (INR)
|Fees Charged (INR
|The minimum share capital of INR 1 lakh
|Additional 1 lakh between INR 1 lakh and INR 5 lakhs
|Four thousand per lakh
|Additional 1 lakh between INR5 lakhs and INR 50 lakhs
|Three thousand per lakh
|Additional 1 lakh between INR50 lakhs and INR1 crore
|One thousand per lakh
|Additional 1 lakh beyond INR1 crore
|Seven hundred and fifty per lakh
How Start-ups in India Raise Authorised Capital?
Most start-ups lack initial funding to propel further. Therefore, they fail to pay out a large sum to augment their authorised share capital while the incorporation process. Therefore, most promoters are left with no other option than paying the minimum required authorised share capital of INR 1 lakh. Hence, they kept the share’s issuance threshold within the said amount. Moreover, the leftover capital is invested in the form of either a share premium or an unsecured loan.
Further, this helps them minimize the requirement of augmenting share capital during the initial phase of their company’s lifecycle. But, once the company thrives & seeks debt or equity, they stretched out the share capital limit for additional shares’ issuance. Therefore, most start-ups opt to commence their operation with lower required share capital for private firms, & gradually, augment the limit as and when they start seeking debt or equity funding.
Registration Fees regarding the Authorised Share Capital
|One Person Company and other small companies having share capital less than INR 10 lakhs For every additional 10,000 after the first 10,00,000 & below 50,00,000
|Additionally, registering a company in view of nominal share capital below 1,00,000
|For registering or submitting any document: Nominal share capital < INR 1 lakh Capital ranging between 10,00,00 and 50,00,00 If the Capital lies between 5,00,000 and 25,00,000 Capital lies between 25,00,000 and 1,00,00,000 Capital surpassing 1,00,00,000
|200 300 400 500 600
|If the company lacks any share capital: Share value as cited under AoA & number of shares falls below 20 Number of shares ranging between 20 and 200
|Fee-related to registration or modification via the Registrar
Authorised share capital is an important asset for the company because it decides how much amount of share can be issues to the stakeholders. It important to note down that the legality related to such a capital usually mentioned under the capital clause of MOA. It’s a good idea to increase such a capital periodically since it helps in compensating liqudity crunch triggered by the financial crisis.
Read our article:Procedure to increase the authorized share capital of a company