Increase of Paid-up share capital is also popularly known as Further issue of Share Capital. Paid-up capital is the amount of money a company has been paid from shareholders in exchange for shares of its stock. A company that is fully paid-up has sold all available shares and therefore the need of increasing paid up share capital comes in.
Every business either big or small in size requires funds to run the business or to meet their business operations. If a Company desire to increase the paid-up share Capital through existing Shareholders, can do so via very easy means through Right Issue laid down under section 62 of the Companies Act 2013 which is most reliable and feasible for the Private Limited and if desire to raise from outsiders (who is not an Existing shareholder of the Company) then can raise through the Private Placement. In a Private Limited Company, we choose the very hassle-free compliance route so that no any extra burden comes in the way to run the business.
Top reasons to Increase the Paid-up Share Capital
The members of the Company at any time may Increase Paid-up Share Capital of the Company. The mode of Increasing the Share Capital of the Company can be either through issuing the shares to the existing shareholders of the company or either to the other persons whether it is a Public Limited Company or Private Limited Company. But the Private Limited Company carries the restriction to issue shares to the General Public as the Private Limited Company cannot issue shares to more than 200 People.
In a Private Limited company, we mainly opt following ways to increase its paid-up Share Capital-
A Private Company can either issue shares to its existing shareholders by way of rights issue or by way of giving them bonus shares or it can issue securities through private placements for outsider Investors.
Normally in Private Limited Company quick access to get funds from from Directors and Relatives of the Directors* in the way of loan to Company which can also convert into the Shareholders fund subject to prior approval (before taking the loan) of Shareholders in the way of Special Resolution and file the required form MGT-14 with the ROC. When Company in future is not able to repay back the loan amount then that time Company can convert this loan into the Equity Share Capital and raise the Paid-up Share Capital. It is mandatory to pass the special resolution at the time of acceptance of Loan with the term of conversion into equity share capital in future.
There is no need to Alter the MOA for the increase of Paid-up Share Capital.
Some Important Key Notes while Increasing the Paid-up Share Capital of the Company-
Once Allotment done or capital Increased must verify the following-For Increase in Issued/ Subscribed Capital Check Whether:
Note*- Every share certificate shall be issued under the seal of the company, which shall be affixed in the presence of, and signed by the TWO directors of the Company and secretary or any person authorized by the Board.
For increasing paid-up share capital, it is important to see under which category the capital increase fall in place:
RIGHT ISSUE UNDER SECTION 62
Process of increase in Paid share capital through Existing Shareholders in Private Limited Company is governed by section 62 of the Companies Act 2013 and Rule 13 (RIGHT ISSUE). Section 62 of the Act contains provisions relating to further issue of share capital through Right issue, issue through Employee Stock, Exchange Stock Option Scheme and on preferential basis.
Right Issue can be offered to: -
Step-1: Amendment of Article if required
Step-2: Hold A Board Meeting and issue the Offer letter
Step-3: Reporting with ROC
Once the allotment is made, the company shall within 30 days of allotment, file with the Registrar a return of allotment in Form PAS.3, along with the fee as specified in Companies (Registration of Offices and Fees) Rules, 2014.
Step-4: Role of the Company after Allotment & Filing
PRIVATE PLACEMENT UNDER SECTION 42
Step 1: Hold board meeting and give notice to call EGM
Step 2: Call an EGM and pass the Special Resolution & Approve the Offer letter
Step 3: Filing of MGT-14
Step 4: Hold again board meeting
Step 5: Reporting to ROC
Other provisions related to issue of securities
Section 42 read with Section 62 of the Companies Act, 2013 and rule 14 of Cos. (Prospectus & Allotment of securities) Rules, 2014
Before Issue of Debenture or Acceptance of Loan
Step-1: Holding of Board Meeting
Step-2: Holding of Extra Ordinary General Meeting
Step-3: Execution of agreement between parties
Steps while conversion of Debenture / Loan into share capital:
Business Growth- By increasing the paid-up capital you can grow the business. If you have got many heads of expense, it is always better to avoid debts and increase the capital of the growing business by increasing paid-up capital of your company.
Innovative Product/Service- With increase in PUC, it will have a buffer which will result in tapping more ideas related to invention. Hence, by increasing the paid-up capital, the company can become more inclined to new ideas leading to innovation of the products or services.
Ahead of Competition- By increasing capital the company can be ahead of its competitor in the market as with the help of technical know-how. Therefore, to remain ahead and competitive, it may require to bring in more capital to the company.
Changing Ecosystem- With the change in ecosystem, market is changing very fast. Hence, to give more satisfaction to consumer the company has to make their business more viable and therefore comes the need to increase the paid-up capital.
Let us understand more in the form of Question and Answers
Q. What do we mean by Nature of Share Capital?
Nature of Shares
Nature and transferability of shares
No nominal value
Q. Is there any minimum requirement of Paid-up Share Capital for company?
No, a company can be incorporated without any limit on paid up share capital.
Q. What kind of Register of Member is required to be maintained under the Companies Act 2013 for the paid-up Share Capital?
What are the Difference between Sec 42 & Sec 62 while Company is making Further issue of Share Capital?
Class of securities falling under section 62 must be shares or securities convertible into shares resulting into increase in subscribed capital of the company. On the other hand, all securities fall under section 42. Hence, in a way all preferential allotments are private placements.
But all private placements are not preferential allotments. It is to be noted that if company raises loan with an option to convert such loan into shares with prior approval of members of the company by way of special resolution before raising of such loan, neither section 42 nor section 62(i)(c) shall be applicable. However, the Company is required to comply with section 62(3) for raising such loans. The issue of securities falling under the section 62(1)(c) shall also comply with the requirements of section 42.
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