Company Registration

Minimum Paid up capital for Private Limited Company

In India, a private limited company is one of the most prevalent types of commercial entity. In India, over 90% of businesses are registered as a Private Limited Company. The Ministry of Corporate Affairs (MCA) regulates these entities under section 2 (68) of the Companies Act, 2013. All entrepreneurs who wish to conduct their organization as both a Public Ltd. company as well as a partnership choose to register as a Private Limited Company since it is the middle ground between the two and offers numerous advantages. Directors and shareholders of a Private Limited Company might increase the company’s reputation by operating it according to their own preferences. And the revenues are distributed as dividends to all of the company’s shareholders. The minimum paid up capital for private limited company as well as the authorised capital required to form a Private Limited Company is explored in further detail.

Eligibility criteria to form a Private Limited Company

1. Number of Directors – A minimum of 2 and a maximum of 15 are required.
2. Shareholders – A minimum of 2 and a maximum of 200 are required. One person, however, can serve as both a director and a shareholder.
3. Citizenship – A foreign director might be appointed to a private company. At least one of the directors of the company shall be an Indian citizen.
4. No Minimum Capital Requirement – Previously, a Private Limited Company in India required a minimum capital of Rs 1,00,000 to be formed. The Companies (Amendment) Act of 2015, however, repealed the provision.

Significance of Paid up capital for Private Limited Company

• Paid up capital is the amount of money raised by issuing all of the company’s shares. The lower the reliance on debt, the more paid up capital there is. A completely paid up capital company is a Private Limited Company that has issued all of its shares and can now grow capital by exceeding its approved capital limit or borrowing money.
• The company’s market health is determined by the paid up capital amount on the balance sheet. It indicates the extent to which the company’s funding is reliant on equity. The financial state of the business is determined by comparing the level of equity to the level of debt.

Classification of capital in a company

The company’s capital may be divided into three types:-

Authorized capital for Private Limited Company

The maximum no. of shares that the Company can issue to its shareholders is known as authorised capital or authorised shares. During the incorporation, the company must specify it’s allowed capital and the importance of AOA in its MOA.

Paid up capital for Private Limited Company

Paid up capital for private limited company, on the contrary, is the portion of authorised capital that specifies the number of shares the company has issued to its shareholders. For instance, the company’s authorised capital (the maximum amount obtained by issuing shares) at the time of incorporation was Rs. 10 lakh, but it has only raised Rs. 7 lakh through its shares so far. As a result, it has a paid up capital of Rs. 7 lakh.

Various sources of Paid up capital for Private Limited Company

The following are the two different sources of paid up capital funding:-

• Par value of the shares

Any Private Limited Company’s primary source of paid up capital is Par value of the shares. The company’s stocks or shares are issued at par value in this scenario. The par value is the stock’s set basic value as stated in the company’s guidelines to changing the MOA after incorporation. The share’s “Nominal value” or “Face value” is another name for it.

• Premium/ Discount value of the stock

In India, private limited companies can generate capital by issuing shares or stock at a discount or premium to their par value. For instance, if a business issues a share with a par value of Rs.10 at a price of Rs. 20, the shares are termed premium shares. On the contrary, if a business offers a share at Rs. 7 with a par value of Rs. 10, the shares are deemed discounted.

In most cases, corporations issue shares at a discount when they are short on cash and need to raise funds quickly. They also issue at a reduced price when a firm is operating at a loss. Companies, on the other hand, issue at a premium value when they are generating profits and there is a huge demand for a limited number of shares.

The minimum paid up capital for Private Limited Company

The minimum paid up capital for Private Limited Company establishment was Rs. 1 lakh under the Companies Act of 2013, but the Companies (Amendments) Act of 2015^[1] states that there is no minimum paid up capital to form a Private Limited Company, but an authorised capital of Rs. 1 lakh is still required to form this company.

Conclusion

As a result, we may infer that our notion of massive investments in creating Private Limited is completely false. The government is assisting businesses in developing the economy of the country by waiving large capital requirements. Forming a business as a Private Limited Company allows the company to expand faster and further with the aid of the government.

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