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Private Limited Company Incorporation In India
Private Limited Company Incorporation

Private Limited Company Incorporation In India

A private limited company is one of the most common kinds of business entities in India. Over 90% of enterprises in India are registered as Private Limited companies. Under section 2 (68) of the Companies Act, 2013, the Ministry of Corporate Affairs (MCA) governs these businesses. Company incorporation is the most important part of any business. All entrepreneurs who want to run their business as both a public limited company and a partnership opt to form a Private Limited Company, which is the middle ground between the two and offers several benefits. A Private Limited Company’s directors and shareholders may improve the company’s reputation by running it according to their preferences.

The profits are then dispersed to all of the company’s shareholders as dividends. The minimum paid-up capital for a private limited company, as well as the authorized capital necessary to create one, is discussed in further depth.

Criteria for forming a Private Limited Company Incorporation

  • A minimum of two and a maximum of fifteen directors are necessary.
  • A minimum of 2 and a maximum of 200 shareholders are necessary. However, one individual can be both a director and a shareholder.
  • Citizenship – A private business may select a foreign director. At least one of the company’s directors must be an Indian citizen.
  • There is no minimum capital need — In the past, forming a Private Limited Company in India required a minimum capital of Rs 1,00,000. The clause was abolished by the Companies (Amendment) Act of 2015.

Importance of paid-up capital for a Private Limited Company Registration in India

  • The amount of money obtained by issuing all of the company’s shares is referred to as paid-up capital. The less debt is used, the more paid-up capital is available. A fully paid-up capital business is a Private Limited Company that has issued all of its shares and is now able to expand its capital by exceeding its permitted capital limit or borrowing money.
  • The quantity of paid-up capital on the balance sheet determines the company’s market health. It shows how much of the company’s funding is based on its own money. By comparing the amount of equity to the amount of debt, the financial health of a company may be evaluated.

How do I go about Company Incorporation?

Company Incorporation procedure:

  •  Request Name Approval
  • Visit the MCA website and login.
  • Information that must be included in the online form
  • Select a file
  • Filling out the form on the MCA website
  • Fees to be Paid

Various sources of Paid-up capital for Private Limited Company

The two separate sources of paid-up capital funds are as follows:-

  • Share’s par value

The Par Value of the Shares is the principal source of paid-up capital for any Private Limited Company. In this case, the company’s stocks or shares are issued at par value. The stock’s established basic value, as indicated in the company’s instructions for altering the MOA after formation, is the par value. The “Nominal value” or “Face value” of a stock is another term for it.

  • Stock’s premium/discount value

Private limited businesses in India can raise funds by selling shares of stock at a discount or premium to their par value. Premium shares, for example, are issued when a company offers a share having a par value of Rs.10 for a price of Rs.20. On the other hand, if a company sells a share for Rs. 7 with a par value of Rs. 10, the stock is considered discounted.

When a company is short on cash and needs to obtain capital fast, it usually issues shares at a discount. When a company is losing money, they also issue at a lower price. Companies, on the other hand, the issue at a premium when they are profitable and a large demand exists for a limited number of shares.

Minimum paid-up capital required for a Private Limited Company Registration in India

  • The minimum paid-up capital required for a Private Limited Company is $100,000.
  • Under the Companies Act of 2013, the minimum paid-up capital for forming a Private Limited Company was Rs. 1 lakh, but the Companies (Amendments) Act of 2015 states that there is no minimum paid-up capital for forming a Private Limited Company, but an authorized capital of Rs. 1 lakh is still required.

Authorized Capital vs Paid Up Capital

In the financial statements, a private limited business, a one-person corporation, or a limited company will have its share capital categorized under numerous classifications. The necessity for paid-up capital for the business was recently repealed by the Companies Amendment Act, 2015. The necessity for permitted capital, however, remains in place. As a result, we go over the distinctions between approved capital and paid-up capital in depth to assist Entrepreneurs comprehend them.

Authorized Capital vs Paid Up Capital Illustration

Authorised Capital of a Company

The maximum amount of share capital for which a corporation can issue shares is known as the permitted capital. The Company’s initial allowed capital, which is normally Rs. 1 lakh, is specified in the Memorandum of Association. With the consent of the shareholders and payment of an additional charge to the Registrar of Companies, the business can raise its capital at any moment. To understand more about a private limited company’s approved capital, go here.

For example, if ABC Private Limited Company has an authorized capital of Rs.10 lakh, it indicates that it can issue shares valued up to Rs.10 lakh to its investors. ABC Private Limited Company is unable to offer shares to its investors valued Rs.11 lakhs. However, because the firm has not issued shares in excess of the permissible capital, the corporation can still issue shares worth just Rs.5 lakh to its investors.

Paid-up Capital of a Company

The amount for which stocks were granted to the shareholder for which transaction took place by the shareholder is referred to as the company’s paid-up share capital. Because a business cannot issue shares in excess of its authorized capital, paid-up capital will always be less than authorized capital.

Prior to the Companies Act of 2013, all Private Limited Companies were required to have a minimum paid-up capital of Rs.1 lakh. This meant that to establish the firm, the shareholders had to spend Rs.1 lakh in the company through the purchase of company shares. The Companies Amendment Act of 2015, on the other hand, lowered the minimum paid-up capital requirement. As a result, there is no longer any minimum capital needed to create a private limited business.

Eligibility criteria to form a Private Limited Company

  1. A minimum of two and a maximum of fifteen directors are necessary.
  2. A minimum of 2 and a maximum of 200 shareholders are necessary. However, one individual can be both a director and a shareholder.
  3. Citizenship – A private firm may select a foreign director. At least one of the company’s directors must be an Indian citizen.
  4. There is no requirement for a minimum amount of capital. Prior to this, forming a Private Limited Company in India needed a minimum capital of Rs 1,00,000. The clause was abolished by the Companies (Amendment) Act of 2015.

Significance of Paid up capital for Private Limited Company

  1. The amount of money obtained by issuing all of the company’s shares is referred to as paid up capital. The less debt is used, the more paid-up capital is available. A fully paid-up capital firm is a Private Limited Company that has issued all of its shares and is now able to expand its capital by exceeding its permitted capital limit or borrowing money.
  2. The quantity of paid up capital on the balance sheet determines the company’s market health. It shows how much of the company’s funding is based on its own money. By comparing the amount of equity to the amount of debt, the financial health of a company may be established.
Conclusion

As a result, we may deduce that our belief in huge investments in the formation of Private Limited is incorrect. By eliminating hefty capital restrictions, the government is supporting companies in building the country’s economy. Forming a firm as a Private Limited Company helps it to grow quicker and further with government assistance. For more information on Public limited company incorporation and company registration in India, reach out to us to avail our prime services.

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