What is the minimum paid up capital for private company registration in India?

The idea of starting a new business attracts another question, which is about the minimum capital requirement. For promoters or young business owners who want to opt for online company registration, it is important to understand the minimum paid up capital for private company. Young entrepreneurs today face confusion regarding the minimum share capital for private company.  The struggle starts when the proposed business requires involvement of nominal amount. Here, there is always a question on what must be the capital of a company when the promoters face a scarcity of funds.

What is the minimum capital for private company registration? 

In this article, we discuss the minimum capital for private company registration. The Companies Act, 2013 prescribes the minimum share capital for private company. According to the law, the authorised share capital for a new company must be at least INR 1,00,000/. Moreover, the MCA no longer needs a minimum paid up capital for company registration.

Now you are aware of the minimum capital requirement. However, it would be better to understand the meaning of terms like authorised share capital and paid up share capital, etc So, let’s focus on these key terms now. 

Paid up vs Authorized Capital

Importance of minimum paid up share capital for company

Legal compliance

Though there is no minimum capital requirement for private company in India, there are many jurisdictions where it is a legal compliance requirement. Moreover, even in India, there are many different types of company in Company Law and hence, it is vital that to maintain legal compliance you check the minimum paid up capital requirement for your business. 

Operate business

Paid up capital is the amount that is with the company already. So, this can be the working capital for your company. Hence, it is very important to run the day to day business operations. Capital is useful to pay the workforce, run the business operations, make sales, introduce new technology, and more. 

Enhanced credibility

In this day of cut throat competition, it is a challenge for newl businesses to gain credibility in the market. Having the paid up capital of a private company at the high end, helps in increasing the credibility. Especially considering the fact that paid up capital is the capital actually paid to the company by its shareholders. So, be it your clients or potential investors, seeing your minimum paid up capital for a private company with a good number will be beneficial for your brand image. 

Classification of share capital for private company

To understand what is a private limited company, it is equally important to know the various classes of share capital applicable for private company. The list below briefly explains all classes of share capital.

Authorised share capital

Authorised share capital of a company refers to the total amount of capital that a company can raise by issuing new shares. Knowing the meaning of authorised share capital is important for company owners. As per the company laws, minimum authorised share capital for a new company must be at least INR 1,00,000/-.  Moreover, there is no maximum limit on the authorised capital. Below are its key characteristics: 

• The authorised capital is an integral part of the capital clause of the MOA; 
• The company cannot raise more funds than its authorised share capital; 
• While calculating the applicable stamp duties for a company, you need to consider the authorised capital; and
• In the event that the company needs to raise more funds than the authorised amount, you will have to apply for an increase in authorised share capital.

Also Read: Capital Clause of MOA

Issued capital

Raising funds in pvt company can be possible at any time post registration. The shares the company issues for subscription and allotment are ‘Issued Share Capital’ of the company. The person/entity being addressee of the said issue owns right to subscribe the shares. However, you need to consider that the issued share capital cannot exceed the authorised capital. 

Subscribed share capital

The subscribed capital of the company is a part of issued capital for which the shareholders of the company have agreed to contribute the amount. The members (shareholders) of the company are only liable for the unpaid amount of capital from the shares they subscribe to and own.

Paid up capital

This refers to the actual amount deposited in the company’s pocket. The paid-up capital of the company refers to the amount for which the company calls and the shareholders pay. The amount of paid up capital reduces from the total liability of the members towards the company. Further, there is no minimum paid up capital for private company in India. However, the promoters need to invest at least the amount that they need to commence business operations. 

During the company registration process, the promoters need to disclose the aurthorised and paid up capital of the company in the capital clause of MOA. As stated above, the minimum authorised share capital has to be Rs 1 Lakh.  Besides, there is no minimum paid up capital for private company.

What should be the ideal minimum share capital of private company? 

Now, you are aware that there is no minimum paid up capital for company. However, we all know that you cannot just commence business operations by keeping your paid up capital 0. Hence, The paid-up capital can range from Rs 200 to Rs 80,000 or so on. It is up to the promoters’ discretion. As mentioned, it should be sufficient enough to fuel the company for its initial stage. You need to plan expenses after rent or ownership of business place, hiring human resource, purchase of hardware and assets etc.

While deciding the amount of Paid-up capital of the company,you need to consider that the said amount shall be deposited in the account of the company within the 30 days of issuance and allotment of shares. Therefore, the amount to be paid shall be divided in such manner that shareholder are able to deposit the amount in account. If additional capital is required, it can be again raised by the company.

This set up of capital could be easier for you to understand by an example here:

The Authorised Capital is Rs 100,000/- and amount to be introduced by promoters is Rs 60,000/-

In given case, the company can raise capital by following any of these scenarios:

Scenario 1

Here, the company can issue 6000 shares of Rs 10 each as fully paid to the proposed shareholder. Under this option, if the company wants to raise more capital at a future date, it shall follow the procedure of issuance and allotment of shares.

Scenario 2

The company can issue 10,000 shares of Rs 10 each to shareholders. However, in this case, the call can be made for Rs 6 on each share, which shall ultimately amount into Rs 60,000 (10,000*6). It is notable that the company has an option to call Rs 40,000 more from the existing shareholders for the same shares issued. The amount of Rs 40,000 can be called at once in future or in any proportion thereof.

Sources of minimum paid up capital for private company

The paid up capital is the actual money that a company has to carry on its business operations. You can obtain the minimum capital for private company from many sources, including: 

Shareholders

From all the shares that are issued to the shareholders, they do not pay for all the shares in one go. So, the amount of shares for which the shareholders pay to the company, are the primary source of minimum paid up capital of the company. 

Investments

When you onboard investors, you are bringing in more paid up capital for your company. 

Loans

Obtaining loans from banks and financial institutions is also a major source for paid up capital. 

Conclusion

The minimum share capital for private company depends on the nature of business and requirement of the operations. When any confusion arises in this regards one can always consult an expert to resolve the queries. Feel free to reach experts at LegalWiz.in on toll-free number 1800-313-4151 or at support@legalwiz.in to register Private Limited Company or to increase share capital.