Introduction

Money that a firm gives to its shareholders in the form of shares is called share capital. A Private Limited Company (Pvt Ltd) relies on share capital since it indicates who owns the company and supports its financial position and management.

Types of Share Capital

Share capital in a private limited company can be classified into several types:

• Authorised Share Capital : According to the Memorandum of Association (MoA), share capital growth is made possible by issuing shares as required. It can also be boosted by making a resolution and reporting to the ROC.
• Issued Share Capital : It refers to the money that the company has offered to investors or shareholders as per its approved capital. A company may issue only a part of its authorized capital initially and issue the rest later as needed.
• Subscribed Share Capital : The money raised from the number of shares is called the subscribed capital. The fact that shareholders invest means they are committed to the company.
• Paid-up Share Capital : This is the sign that shareholders help fund the subscribed capital. It is the real money the company receives and can use for business activities.
• Called-up and Uncalled Share Capital : From time to time, companies do not need shareholders to purchase their shares at full face value in one go. Money that an investor brings when calling capital is called called-up capital; anything remaining is called uncalled capital.

Minimum Share Capital Requirement

As per the Companies Act, 2013 (India):

• You do not need a certain amount of capital to create a private limited company.

• Earlier, you had to deposit at least ₹1 lakh before starting a bank account, but this rule has been changed to encourage more business.

Shareholding Structure in a Private Limited Company

• To register a Private Limited Company, it is required to have at least 2 and not more than 200 shareholders.

• Private company shares cannot be sold and bought by anyone without permission. How much shares can be transferred depends on the rules in the Articles of Association (AoA).

• Shareholders get to vote depending on the amount of money they have invested.

• Besides people, companies, or NRIs, foreign bodies are allowed to be shareholders as well (on the condition that Indian regulations allow it).

Procedure to Issue Share Capital

• Board Meeting: During the next board meeting, pass a decision allowing shares to be issued.

• Offer Shares: Invite people to buy your company’s shares, whether they are existing investors or new ones.

• Receipt of Money: The customer should make the payment by bank transfer or by presenting a cheque.

• Allotment of Shares: Make sure that within 60 days, share certificates are issued after shares are allotted.

• Filing with ROC: When you have received money from the IP, you must send e-Form PAS-3 to ROC within 15 days.

Increase in Share Capital

Company management may add to its share capital to raise more money. The steps include:

• Altering the Memorandum of Association.

• Before a merger can proceed, both the board and the shareholders have to agree with it.

• You should complete and hand over the e-Form SH-7 to the ROC.

• Giving investors an option to acquire shares through a rights issue, private placement, or bonus issue.

Compliance and Regulatory Aspects

• All share certificates need to be issued within 60 days after they have been allotted.

• All PAS-3 and SH-7 forms are submitted on time, together with other required documents.

• Maintain records of all members, their allotments, and the transfers that happen.

• Directed at share certificates and any rise in capital, according to state policies.

Importance of Share Capital

• Shows if the company’s finances are dependable and healthy.

• Changes the amount of authority shareholders have over the company.

• Helps to reduce the risks and losses that a business might face.

• Helps in gaining more money from investors or additional funds.

Conclusion

Share capital is the key factor that helps a private limited company with its financial structure. It allows for ownership and control of the company and gives it the right to fund its business activities, develop further, and get recognised by others in the industry. Managing share capital correctly and having a clear understanding are both needed for the company to be in line with the law and succeed in the future.

Disclaimer

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