Increase Paid Up Capital
When activities of the company are increasing day by day and pursuant to that company need funds by the way of borrowing and capital infusion then the company has option to increase its paidup share capital up to the level of its authorised share capital. Hence whenever there is the need to have finance to meet liquidity and other financial requirements on short term basis to keep, maintain and have consistent growth of the business of the company and for that purpose increase in the capital is the immediate requirement.
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- Articles of association (AOA)
- List of Existing shareholders.
- Details of proposed shareholder
- Proposed Paid up share capital.
- Other documents, if required.
Which companies can increase its paid-up capital?
Both public limited company and private limited company are allowed to increase paid up capital. However, there are restrictions on private limited company that they can not issue shares to general public
Benefits of increasing Paid up Capital of the Company
By increasing the capital you can grow the business. If you have idea of growing business then you need to infuse a good amount of paid up capital into your business.
By increasing capital we can easily give competition to the market as technology is changing very fast. Hence, to compete and to stay in market, more capital will be required.
More capital will result in tapping more ideas related to invention. Hence, by increasing the paid up capital, the company can become more innovative
With the change in environment, market is changing very fast. Hence, to give more satisfaction to consumer we have to make our business better and for that we have to need increase our paid up capital.
How to increase Paid up Capital of Company?
Following are the methods through which a company can increase its paid up share capital:
- Private placement
- Right issue
- Preferential basis
- Sweat equity shares
- Conversions of loans or debentures into shares
- Issue of bonus shares
Now let’s try to discuss them in brief:
- Private placement: Private placement is a method through which offering of securities can be made to not more than 200 persons in the aggregate in a financial year. This mainly include family ,friends etc. Excluding qualified institutional buyers and employees of the company. Private placements are exempt to issue prospectus but they are issued by offering an offer letter.
- Right issue of shares: It refers to an invitation to subscribe shares to the existing shareholders at discount rate .In this method when company wants to rise paid up capital company, it goes to existing shareholder of the company rather than public. By this company give chance to existing shareholder to get share at discount rate.
- Preferential basis: In this method company issue shares or other securities to selected group of persons .Value of offer per person shall not be less than Rs. 20000/- of face value. It must be authorized by Article of association of the company and approve by shareholder at Annual general meeting .
- Sweat equity shares: These shares are issued to directors or employees at discount or consideration other than cash for providing known how or making available rights in the nature of intellectual rights or value additions.
- Conversions of debentures into shares : Through this method, a company may convert its debentures into shares by passing a special resolution. Also, in this money invested cannot be refunded until liquidation.
- Issue of bonus shares: it is an offer to issue additional shares to the existing shareholders. It is also called scrip issue. It must be authorized by company articles of association.company can simply issue bonus share by its free reserves. For example , company will issue 1 share on every 5 shares hold by each shareholder of the company.
Procedure to increase Paid up share capital of the company
- Hold a Board Meeting and Pass board resolution at board meeting
- During board meeting, decide the way to increase capital
- Send notice to all member for calling general meeting and approve the same by passing members resolution.
- Submit relevant form to MCA.
- Within 60 days from application money allot shares to the shareholders.
- After allotment company shall issue share certificate within 2 months of allotment to all the shareholder of the company.
Whenever the Company having a paid-up share capital, at any time decides to increase the subscribed Share capital of the Company, any one of the above methods can be used for increasing the share capital of the Company.
Frequently Asked Questions
Authorised share capital means that maximum amount of money which company can raise through share capital. It is also known as nominal capital.
No, a company can be incorporated without Authorise share capital.
A company can appoint maximum fifteen Directors. However by passing special resolution a company may appoint more than fifteen directors.
No, Paid-up Share Capital can be equal or less than the authorised share capital but cannot be more than authorised share capital.
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