Well, when you are registering a company, you will come across the words Authorised Capital and the Paid-up Capital of the proposed company. In this blog post, we would briefly explain the meaning of these terms in the context of the company. The initial capital of the company implies long term investment introduced by the subscribers of the MOA. These are non-returnable investments and does not guarantee a fixed return, however, entitles the shareholder to the share in profits of the company.
Authorised capital is mentioned in the Memorandum of Association (MOA) of the company. This sets a limit on the capacity of the company to raise its equity capital. The government fee of company registration also depends on the authorized capital of the company.
The promoters then subscribe to the capital of the company by signing on the last page of the MOA, that is known as “Subscribed Capital”. It is a promise undertaken by the shareholders to pay to the capital of the company. The subscribed capital can be lesser than the authorised capital. The subscribed capital became paid-up capital when the company received the amount of money from the shareholder. As per new provisions of the companies act,2013, a newly incorporated company can not commence its business operations unless the subscribed amount is received from all the subscribers of the MOA. After the receipt of the subscription money, the company has to file Form INC-20A to the ROC.
What is the minimum capital required for company registration?
The companies amendment act of 2015 has removed the requirement of any minimum authorized or paid-up capital for the company. The amount of capital should be enough to fund the initial stage of the company until it starts generating revenue. Please note that a company can finance its activities only by way of funding received from the shareholders as capital, the loan from outsiders, and income generated from the sale of goods or rendering of services. The loan by or to the directors or the director’s family is restricted by the companies’ activities. We recommend you to do small budgeting of the proposed business and accordingly decide the right amount of capital for your company.
Can I Increase Authorised Capital of the Company later?
Yes. The authorized capital of the company can be increased at any time as per the requirement of the company. Please note that there is a process involved for raising the authorized capital and you have to seek prior approval before raising of the authorized capital of the company. Please read more on our dedicated webpage to increase the capital of he company