The process begins when the applicant approaches their issuing bank for an LC. The issuing bank then coordinates with the negotiating bank to establish terms and verify documents before releasing any funds. ABC Pvt Ltd shows how smart capital planning helps long-term business goals while keeping initial registration costs low. CAs, experts and businesses can get GST ready with Clear GST software & certification course. Our GST Software helps CAs, tax experts & business to manage returns & invoices in an easy manner. Our Goods & Services Tax course includes tutorial videos, guides and expert assistance to help you in mastering Goods and Services Tax.

Step 2: Set authorized capital for future scalability

The final step is to organise the EGM (Extraordinary General Meeting) of shareholders. In this meeting the shareholders will approve the new capital limits through an ordinary resolution and adopt the amended MOA. After the shareholders approve the new capital limits, the change of authorized capital and paid up capital will be confirmed. As per the Companies Amendment Act of 2015, there is no minimum requirement of paid-up capital a Private Limited Company can issue to the shareholders. However, when the company issues the shares, there are chances that not all the shares sell out.

• Knowing these differences is vital to incorporating a company as well as raising money.
• The company can increase or decrease the authorised share capital based on its requirement.
• The process begins when the applicant approaches their issuing bank for an LC.
• Yes, a company can operate with paid-up capital that is less than its authorized capital.
• In order to revise the authorised capital, you need to obtain the board approval, get the resolution passed to revise the authorised capital.
• If it wishes to sell shares worth more than this amount, it will first have to raise the authorised capital through a resolution at the general meeting.

They are responsible for conceiving the business idea, arranging initial funding, completing legal formalities, and ensuring the company is incorporated. A company promoter is a person or entity that undertakes the responsibility of forming a company. As per legal definitions, a promoter is someone who conceives the idea of the business, takes the necessary steps to incorporate the company, and facilitates its registration.

Features of authorised capital

It also contains the provision to increase or reduce the authorised capital of the company. In this example, the maximum capital required by the company that is Rs 500 Cr is called the Authorised Capital & Rs 250 Cr, the actual amount that is presently received is called Paid-up Capital. Hence in this article, we learned about authorized capital, paid-up capital, and some significant differences. And I hope now all these things are clear and you are ready to dig into other similar concepts.

Regulatory Compliance

Any user can view the Authorised Capital & Paid-up Capital details of any Indian company for free on the Ministry of Corporate Affairs (mca.gov.in) or on InstaFinancials. No, a promoter cannot serve as an independent director of the same company. According to Section 149(6) of the Companies Act of 2013, independent directors must not have any material or relationship with the company, its promoters, or its directors. Elon Musk is a modern-day promoter known for revolutionising industries through Tesla and SpaceX. Dhirubhai Ambani, the visionary founder of Reliance Industries, started the company in 1966 as a small polyester trading firm.

Capital reserve is a part of a company’s profit, which it reserves for a specific purpose, such as business expansion, writing off capital expenses, etc. © 2024 LegalWiz.in – LegalWiz.in is the leading provider of personalized online legal solutions & legal documents in India. Comparisons may contain inaccurate information about people, places, or facts. The procedure for raising Authorized capital and Paid Up capital must be mentioned in the AOA (Articles of Association) of the company.

• Kah Hee is actively involved in commercial litigation, arbitration, as well as immigration law, employment law, corporate compliance and governance.
• A letter of credit is a financial instrument issued by a bank that serves as a guarantee of payment in a transaction.
• InstaFinancials is an award winning Indian Corporate Intelligence Platform where you can get Financial & Non Financial Information about any Indian Company & Director.
• Private limited companies can legitimately minimise their tax outgo by availing deductions, exemptions, and incentives provided under the Income Tax Act.
• By defining this cap, authorised capital helps maintain financial discipline and ensures that the company does not exceed its legal boundaries when seeking investment from shareholders.

Can a company’s paid up capital exceed its authorised capital?

This streamlined and simplified the evaluation process for investors to evaluate companies. The distinction between authorised and issued share capital can at times be misleading. However, the removal of the concept of authorised capital has made it much easier for companies to distinguish between the two and do business.

This code streamlines customs clearance, enables duty benefits, and ensures regulatory compliance. Through platforms like Razorpay Rize, businesses can obtain their IEC within 6-7 days which makes the process efficient and straightforward. The calculation combines nominal value (face value × number of shares) with any premium above par value.

All About Corporate Tax in India

According to Section 2(8), Authorised Capital also called nominal capital is the maximum share capital that a company is allowed to raise from its shareholders. Also, the Capital Clause of the Memorandum of Association specifies the amount of Authorised Capital. Paid-up share capital or paid-up capital is the amount that the company receives. The company makes its paid-up share capital by selling the shares in the primary market, which is NSE and BSE.

In such cases, MAT is levied at 15% (plus applicable surcharge and cess) of the book profits. The education cess of 4% is uniformly applicable to the total tax payable, including any surcharge, regardless of turnover. Finance Minister Nirmala Sitharaman has proposed a difference between authorized capital and paid up capital reduction in the corporate tax rate for foreign companies, bringing it down from 40% to 35% in the 2024 budget. A Revolving Letter of Credit allows reuse after payments or drawings are made. This flexibility is beneficial for businesses requiring multiple shipments or ongoing transactions under one credit arrangement.

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However, for PTs that carry out certain business activities, the minimum amount of authorized capital must comply with statutory provisions. For example, for insurance companies, since the paid-up capital at the time of establishment must be at least Rp150 billion, the authorized capital must also not be less than this amount. Authorized capital is the highest amount a company can issue to the shareholders. Private limited companies in India are subject to various taxes, with the primary one being the corporate income tax. Understanding the tax rates and compliances is crucial for entrepreneurs and business owners to manage their finances effectively.

Having a fixed authorised capital allows companies to limit directors from allotting themselves new shares and eventually take control of the company. One of the other functions of authorised capital is to keep a check on the balance of profit distribution. Of these, authorised capital and paid-up capital are two of the most important share capitals.

In this article, we will compare and contrast the attributes of Authorized Capital and Paid-Up Capital to shed light on their significance in the corporate world. Rs. 6,00,000 from shareholders for the shares that it has issued, the paid-up capital would be Rs. This is not allowed, and the company would need to increase its authorized capital to Rs. The share capital of a private limited company is used to fund the company’s operations, pay for expenses, and invest in new projects and ventures. The Ministry of Corporate Affairs (MCA) has exempted private limited companies through the Companies (Amendment) Act, 2015 by removing the minimum requirement for authorized and paid up capital. The funding of the company, as of now, should be sufficient to support its business operations, especially, in the initial stages of its operations.