Minimum Capital for Private Company

 

A few months ago, a private limited business had to put down a certain sum as capital. The condition has been eliminated as a result of the subsequent revisions, much to the satisfaction of the aspiring business owners. Read further to learn about much capital is needed for private limited company registration online.

 

Launching a new Private Limited Company in India is both thrilling and terrifying for the same primary reason: the investment! 

 

It is especially true if the business owner wants to incorporate it as a private limited company. 

 

The most important component that determines a business's outcome is an investment. The most common way to raise capital is to issue shares to the shareholders.

 

Why must you apply for a Private Limited Company?

 

A private limited company is a preferred structure for companies looking to expand and gain more recognition. 

 

The vast majority of enterprises in India are set up as private limited companies. 

 

A private limited company is thought to provide the advantages of both a partnership and a public limited company. In a private limited company, the decision-making authority of the directors and shareholders is stronger. 

 

The company distributes dividends to its shareholders in proportion to their shares of the company's earnings.

 

Requirements to Form a Private Limited Company

 

Director

 

A Private Limited Company may have up to 15 directors, however, only two directors are required. A foreign director may be appointed by a private limited business. The only requirement is that at least one of the directors must be an Indian national.

 

Shareholders 

 

To form a private limited company, there must be at least 2 shareholders. There is a 200-shareholder limit for the firm.

 

Minimum Capital

 

Prior to the Companies Act of 2013, a private limited company had to have a minimum capital of 100,000 to be incorporated. 

 

Authorised Capital of a Private Limited Company

 

The maximum share capital that can be used to issue shares in a private limited company is known as the "authorised capital" of such a firm. 

 

This authorised capital is often stated in the company's memorandum of association and is typically set at Rs. 100,000. 

 

It may, however, be raised with the approval of the shareholders and payment of the necessary fee to the Registrar of Companies (RoC). 

 

The authorised capital represents a company's net worth.

 

Let's use the company XYZ private limited as an example. Its authorised capital is Rs. 7 lacs. 

 

It would indicate that this business can grant shareholders shares worth up to Rs. 7 lacs. 

 

The company may opt to issue fewer shares than its authorised capital, such as Rs. 4 lacs, but it may not issue more shares than the threshold amount of Rs. 7 lacs.

 

Paid-up Capital of a Private Limited Company

 

On the other hand, paid-up capital refers to the actual sum of money that the business acquires through the issuance of shares to shareholders. 

 

As the company cannot issue shares over the allowed capital, the paid-up capital is always less than the authorised capital. 

 

The paid-up capital thus acquired is frequently used to control the company’s expenses.

 

When it comes to a private limited company’s minimum paid-up capital, there used to be a requirement that it have a capital of Rs. 100,000. 

 

This would mean that the shareholders should spend at least 100,000 to buy the shares in order to start the firm. 

 

The Companies Amendment Act, of 2015, however, eliminated this requirement, making it possible for business owners to incorporate private limited companies without any obstacles.

 

Before the modification, it was required that the specified Rs. 100,000 be deposited in the business’s bank account. 

 

It is sufficient to note the paid capital on the papers now that the provision has been removed.

 

As a result of this provision, many businesses have begun to favour private limited corporations over other corporate forms like Limited Liability Partnership (LLP) enterprises because acquiring financing in the latter is extremely difficult. 

 

Due to its limited liability, favourable tax treatment, and high level of client credibility, a private limited company registration online is always preferred. 

 

The mandate to eliminate the minimum capital requirement has undoubtedly broadened the scope of private limited companies and given them a little advantage over other corporate organisations.

 

Sources of Paid-up Capital for a Private Limited Company 

 

The two different sources of paid-up capital finance are as follows:

 

 

Par Value of the Shares

 

The Par value of the shares is the main source of paid-up capital for any Private Limited Company. In this case, the corporation issues its stocks or shares at par. As specified in the company's policies for altering the MOA after incorporation, the par value is the stock's predetermined basic value. Another term for it is the share's "Nominal value" or "Face value."

 

 

Premium or Discount Value of Shares

 

Private limited companies in India are able to raise money by issuing stock or shares at a discount or premium to their par value. 

 

The shares are referred to as premium shares, for instance, if a company issues a share with a par value of Rs. 10 at a price of Rs. 20. 

 

The shares, on the other hand, are regarded as discounted if a company offers a share at Rs. 7 with a par value of Rs.10.

 

When businesses are short on cash and need to raise money quickly, they frequently offer shares at a discount. 

 

When a business is losing money, they also issue at a lower price. However, when a company is profitable and there is high demand for a small number of shares, it will issue at a premium price.