Increase Paidup Capital

Increase Paidup Capital

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

  • Investor Funding- In the fast-moving market of India, where many Startups come forwards as a competitor are constantly updating their products, a business needs to spend funds or money on developing and marketing new products e.g., to do marketing research on time basis and test new products in "pilot “mode therefore takes investment through Private Placement from Angel Investors which causes increasing paid-up share capital.
  • For the need of Working Capital- Sufficient working capital is a key aspect of any company’s financial health, and not having enough working capital can have a serious impact on the future of your business.
  • Purchase of Assets- Growing your business and increasing sales often requires you to purchase assets such as new machinery or vehicles.
  • For starting new business along with Existing- New businesses that are still in the start-up stage will need funding to get off the ground. While most directors will use their own funds to start the business, very few manage to entirely self-fund the company to profitability, and will therefore have to seek external funding. There are a variety of options for external start-up funding, including bank loans, borrowing from family and friends, equity investment from a business angel, crowdfunding, and funding grants;
  • Growth of the business- Increase sales, expand your range of products or services, move into new premises, hire more staff, or expand internationally, a paid-up capital growth can help.

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-

  • Issuing securities through right issue and
  • Bonus issue
  • Private Placement
  • Preferential Allotment
  • Conversion of loan or debenture in to 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-

  • At very First need to Check whether Articles of Association of Company contain a provision authorizing it to increase its Paid-up Share Capital.
  • If you did not find such provision then before increasing paid-up share capital, amend its articles to include such authorization under section 14;

Once Allotment done or capital Increased must verify the following-For Increase in Issued/ Subscribed Capital Check Whether:

  • Resolution approving increase in issued/ subscribed capital is filed with MCA?
  • E-Form PAS 3 (Allotment of shares) was filed with proper attachments with MCA?
  • Share certificates issued? [Format of Share Certificate – Form No. SH.1]
  • Entries made in the Register of members (MGT-1)?
  • Entries have been passed in the Books of account?

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.

Legal Proedures

For increasing paid-up share capital, it is important to see under which category the capital increase fall in place:

  • Right Issue
  • Bonus issue
  • Private Placement
  • Conversion of loan or debenture in to share capital


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: -

  • the existing Shareholders.
  • the employees under a scheme of ESOS.
  • any other persons, by way of preferential offer, if authorized by AOA.

Step-1: Amendment of Article if required

  • Check whether the Right issue be authorised by article of the company if not then amend Article First.
  • If so, call a board meeting to approve the notice of General meeting to pass necessary special resolutions at the general meeting to amend Articles of Association.
  • Convene the general Meeting and obtain shareholders’ approval through special Resolution.
  • File the form MGT14 filed with ROC with 30 days from passing Special Resolution.

Step-2: Hold A Board Meeting and issue the Offer letter

  • Board of director shall call and hold board meeting to give the effect of right share issue;
  • In the board meeting director shall decide number of shares to be issued through right issue and price of right issue
  • The offer should be made by notice, specifying the number of shares offered and limiting a time not being less than fifteen days and not exceeding thirty days from the date of the offer within which the offer, if not accepted, shall be deemed to have been declined.
  • This notice shall be despatched through Registered post or speed post or through electronic mode to all the existing shareholders at least three days before the opening of the issue.
  • However, in case of private companies in case 90% of members have given their consent in writing or in electronic mode, the lesser period than the specified period shall apply.
  • The shares declined by the existing shareholder can be disposed off by the company in manner which is not disadvantageous to the shareholders and the company.
  • Once Application money Received allot the share to the shareholders.

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

  • Deliver the share certificates of allotted shares within a period of 2 months from the date of allotment.
  • Intimate the details of allotment of shares to the Depository immediately on allotment of such shares (If shares are in Demat as applicable)


Step 1: Hold board meeting and give notice to call EGM

  • 1. For issue of offer letter to the person to whom company intent to allot the share, subject to approval of shareholder
  • 2. Give notice for Calling of EGM for approval of private placement offer letter

Step 2: Call an EGM and pass the Special Resolution & Approve the Offer letter

  • 1. Pass the special resolution for approval of security through private placement offer
  • 2. Approve the private placement offer letter in form PAS 4

Step 3: Filing of MGT-14

  • 1 File MGT 14 for special resolution pursuant to provisions of Sec 117 within 30 days (If applicable)
  • 2 File another MGT 14 for issue of offer letter within 30 days

Step 4: Hold again board meeting

  • 1. Make allotment of shares

Step 5: Reporting to ROC

  • 1 File form MGT 14 for issue of securities pursuant to the provisions of Sec 117
  • 2 File for PAS 3 for Return of Allotment within 30 days

Other provisions related to issue of securities

  • 1. The offer for Private Placement can be made either through electronically or physical mode, in Form PAS-4.
  • 2. Offer for each kind of securities shall not be made to more than 200 persons in a financial year.
  • 3. Minimum offer of securities shall not be less than Rs. 20000/- on face value of the securities
  • 4. Subscription money shall be paid through banking channel only, not by cash
  • 5. Allotment has to be made within 60 days from the date of receipt of application money.
  • 6. Application money shall be kept in a separate bank account and it can’t be utilised before allotment.
  • 7. List of allottee shall be signed by the person who is making the Digital signature on form PAS3


Section 42 read with Section 62 of the Companies Act, 2013 and rule 14 of Cos. (Prospectus & Allotment of securities) Rules, 2014

  • (Share Capital and Debentures) Rules, 2014
  • S. No.
  • 1
    Subscription money received for issuing of securities shall be paid through cheque or demand draft or other banking channel but not by cash;
    Private placement offer can be made by a company only to such persons whose names are recorded by the Company prior to the invitation and the offer to such persons shall be made by name;
    Such offer or invitation shall be made to not more than 200 persons in the aggregate in a financial year;
    The value of such offer or invitation per person shall be with an investment size of not less than Rs.20,000 of face value of the securities;
  • 2
    No of shares to be allotted;
    Name, Fathers Name, address, email id, phone no and PAN of the persons to whom the shares shall be done;
    Remittance proof;
    Previous shareholding of the Company;
    Main objects of the Company
    Face value of the shares and amount of premium per share, if any;
    Name and address of the valuer who performed valuation of shares;
    Proposed time schedule for which the offer letter is valid;
    Remuneration of directors (during the current year and last three financial years);
    Related party transactions entered during the last three financial years immediately preceding the year of circulation of offer letter including with regard to loans made or, guarantees given or securities provided;
    Details of the existing share capital of the issuer company;
    Summary of the financial position of the company as in the three audited balance sheets immediately preceding the date of circulation of offer letter;
  • 3
    Time period of filing
    Within 30 days from the date of passing the Special resolution
  • 4
    Forms to be filed
    Form MGT-14(1) within 30 days from the date of passing the Special resolution;
    Form GNL-2
    Form PAS-3 within 30 days from date of passing the board resolution;
    Form MGT-14(2) within 30 days from date of passing the board resolution;
  • 5
    1. MGT-14(1)
    Notice and Explanatory statement;
    List of Directors;
    CTC of special resolution;
    2. GNL-2
    PAS-4 (Private placement offer letter)
    PAS-5 (Record of a private placement offer to be kept by the Company)
    3. PAS-3
    Board resolution for allotment;
    List of allottees;
    PAS-5 (Record of a private placement offer to be kept by the Company);
    Remittance proof (I.e., payment has been done by the subscribers);
    4. MGT-14(2)
    Board resolution for allotment;
    List of allottees;
    Remittance proof (I.e., payment has been done by the subscribers);
  • 6
    If a company makes an offer or accepts monies in contravention of Section 42,
    (i) Company
    (ii) Promoters
    (iii) Directors
    shall be liable for penalty which may extend to the amount involved in the offer or invitation or Rs.2 crore Whichever is higher and the Company shall also refund all subscription money to the subscribers within 30 days of the order imposing the penalty.


Before Issue of Debenture or Acceptance of Loan

Step-1: Holding of Board Meeting

  • Pass a resolution for Acceptance of Loan or issue of debenture
  • Pass board Resolution for conversion of such Loan / Debenture into Equity share Capital of the Company
  • Issue Notice to call Extra Ordinary General Meeting.

Step-2: Holding of Extra Ordinary General Meeting

  • Pass Special resolution for conversion of such loan/ Debenture into Equity share capital of Company in Future.
  • File e-form MGT-14 within 30 days of passing of Special Resolution with ROC.

Step-3: Execution of agreement between parties

  • Company & Loan Giver (Party) will execute an agreement of Terms of Loan or Debenture.
  • Agreement must contain the term of conversion of such Loan or Debenture into Equity share capital of Company in Future.

Steps while conversion of Debenture / Loan into share capital:

  • Hold of Board Meeting
  • Pass the Board Resolution for Allotment of Equity Shares in respect of conversion
  • Filing of e-form PAS-3 for allotment of Shares within 30 days of passing of Board Resolution along with List of Allottees.


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

  • (1) A share or other interest of a member in a company is personal property.
  • (2) A share or other interest of a member in a company is transferable in accordance with the company’s articles.

No nominal value

  • (1) Shares in a company have no nominal value.
  • (2) This section applies to shares issued before the commencement date of this section as well as shares issued on or after that date.

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?

  • Particulars
  • Register of Members (Sec 88)
    Every company limited by shares shall, from the date of its registration, maintain a register of its members in Form No. MGT.1

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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