Paid Up Share Capital

The paid up share capital is the part of the total called up amount that is actually paid by the shareholder. It refers to the amount that has been received by the company through the issue of shares to the shareholders. A company cannot issue paid-up capital greater than the authorized capital of the company. However, a company may increase its paid-up capital; it can do so by altering the capital clause of a memorandum.

Paid up share capital is the lifeblood a company receives from shareholders. Paid up share capital also represents the total amount of money investors have contributed by purchasing shares.

Which companies can increase their paid up share capital?

Any company with the right to dispose of shares may increase its paid up share capital. This generally includes any public and private restrictions in place. Here are some excerpts:

Public Companies:

Public holding organizations are those that are listed on the stock exchange and issue shares to the general public. These agencies have the authority to trouble stocks for the public and may increase their paid up share capital through the issuance of new shares inside the primary market.

Private limited companies:

Private restricted organizations are those that do not provide shares to the general public and have a restrained range of shareholders (often their own family contributors, founders, or traders). These agencies can also increase their paid up share capital with the aid of issuing new shares to existing shareholders or by bringing in new traders.

Startup Companies:

Startups, whether public or private, frequently grow their paid up share capital as they develop and require additional investment to support their expansion plans. They can also boost capital paid up in numerous ways, including with non-public placements, challenge capital investments, or angel investments.

Companies Undergoing Expansion:

Any employer, no matter its size or industry, may additionally decide to grow its paid up share capital while it wishes additional price range for expansion, diversification, or other commercial enterprise purposes. This should include organizations in sectors along with manufacturing, offerings, era, healthcare, or finance.

Benefits of increasing the paid up share capital of the company:

Expansion Plans:

One of the main reasons for increasing paid up share capital is a plan for growth. By increasing the variety of stocks an agency can manage, it could raise extra capital through fairness percentage. Paid up share capital can be used for such things as acquiring property, investing in new tasks, or expanding operations.

Financial Flexibility:

Increasing paid up share capital affords Financial flexibility is the most important part of determination of structure of the company’s capital and can be applied to maintain the debt capacity for the purpose of future development of the company or to minimize debts to avoid financial distress in an economic recession.

Flexibility in Financial Management:

Having a larger capital base affords the business enterprise extra flexibility in coping with its budget. It can help the employer weather financial downturns, fund studies and improvement efforts, spend money on new technologies, or adopt strategic projects without relying entirely on external financing.

Regulatory Compliance:

Regulatory compliance is an organization’s adherence to laws, regulations, guidelines, and specifications relevant to its business processes.

How do you increase the paid up share capital of a company?

Following are the methods through which a company can increase its paid up share capital:

Private Placement:

As per Section 42 of the Companies Act, 2013, private placement means any offer or invitation to subscribe to or issue securities to a selected group of persons by a company (other than by way of a public offer) through a private placement offer-cum-application form that satisfies the conditions specified in Section 42 of the Companies Act, 2013.

Section 42 of the Companies Act, 2013 states that the maximum allotment that can be done in a year is Rs. 200, exceeding which the issue is considered public, and the company has to follow the procedure for public issues.

In the process of private placement, no prospectus is issued.

Eligible Investors:

The Act specifies that the offer of securities needs to be made only to qualified institutional customers or to fewer than 200 men and women inside the mixture in an economic manner, with the exception of certified institutional buyers and personnel of the enterprise being supplied securities under a scheme of personnel stock choice.

Limitations:

The Act imposes certain boundaries on the quantity of securities that can be issued through personal placement in an economy.

Compliance:

Companies pursuing non-public placement must follow diverse requirements, including obtaining the approval of the board, passing a unique decision, submitting a provident letter with the Registrar of Companies, and so on.

Pricing:

The Act also mandates that the charge at which the securities are to be issued has to be decided with the aid of a registered valuer.

Use of Proceeds:

Companies must make use of the proceeds from private placement handiest for the purposes cited within the provide letter and according to the relevant provisions of the Companies Act.

Penalties:

Non-compliance with the provisions of personal placement can attract penalties as specified inside the Act.

Right Issue:

According to the Companies Act 2013 in India, rights issue refer to the process by which a company raises additional capital by offering existing shareholders the right to purchase additional shares at a discounted price, generally in line with their existing shareholding Companies Act 2013 Here are the main parts of the rights clause in it.

Definition:

rights issue is defined under Section 62 of the Companies Act, allows a company to issue new shares to existing shareholders, and gives them the right (but not the obligation) to subscribe to new shares pursuant to their existing shares being correct.

Eligibility:

Existing shareholders of the company are eligible to participate in the offer of rights. Shareholders who do not wish to subscribe to the new shares may waive their rights in favor of other shareholders or third parties.

Term of Issuance:

The term of the grant of rights is usually specified in the prospectus to shareholders.

Compliance:

If the shares of the company are unlisted, the company shall be required to comply with the Companies Act 2013, whereas in the case of a listed company, it shall be required to follow SEBI regulations.

Rights issues give existing shareholders the opportunity to maintain their equitable ownership in the company, participate in its growth, and enhance the company’s ability to generate capital.

Sweat Weat Equity Shares:

Under the Companies Act 2013 of India, sweat equity shares refer to shares issued by a company to its employees or directors as consideration for contributions to the company, particularly in the form of intellectual property rights or know-how. Here are the main features of sweat equity under the Companies Act 2013.

Definition:

Sweat equity shares are defined in Section 2(88) of the Companies Act, 2013. They are equity shares issued by a company to its employees or directors at a discounted price or for non-cash consideration in recognition of their contribution’s promotion, intellectual property or know-how of the company.

Eligibility:

Sweat equity shares may be issued to directors or employees of the company, including promoters, who have directly or indirectly transferred their intellectual property rights or know-how to the company. However, certain categories of employees, such as promoters, full-time employees, and elected officials, are not eligible for sweatshop participation.

Approval:

Companies wishing to issue sweatshop dividends must obtain the approval of their shareholders by passing a special resolution in a general meeting The resolution must specify the number of sweatshop dividends, the amount to be considered, and other relevant terms.

Purpose:

A registrant may determine the valuation of the intellectual property rights or know-how provided by employees or directors in connection with the issuance of sweat equity shares. The notified valuation must be submitted to the shareholders for approval.

Locking Period:

Sweat equity shares granted to employees or directors are locked for three years from the date of allotment or such other period as may be specified by the Securities and Exchange Board of India (SEBI).

Compliance:

Companies must comply with the regulatory requirements and provisions of the Companies Act, 2013, including obtaining necessary approvals from and monitoring regulators such as the Securities and Exchange Board of India (Sebi). to comply with the listing rules if the company is registered, including stock exchanges.

Sweat equity shares provide companies with a way to motivate and reward employees or directors for their contributions to the growth and success of the company, thereby aligning their interests with those of shareholders, and the statutory requirements provided for under the applicable law have been complied with.

Conversions of Loans or Debentures into Shares:

In India, the conversion of part of debt or liabilities under the Companies Act 2013 refers to the process by which a company converts outstanding debt or liabilities into equity shares of the company. Here are the basics of conversion as part of a loan or line of credit.

Delegation of Authority:

The right to convert as part of a loan or equity is generally vested in the board of directors of the company. Shareholders can empower the board by passing a resolution at a general meeting.

Conversion terms:

Conversion terms, including conversion ratio, price, and other terms, are usually described in a loan agreement or debenture trust deed These terms must be complied with during the conversion process.

Approval:

Depending on the terms of the loan agreement or debenture trust, the amendment may require approval by the company’s board of directors, shareholders, and regulators, such as the Securities and Exchange Board of India (SEBI), that the company be listed as a bank.

Valuation:

Loans or bonds converted into shares may need to be valued to determine the number of shares issued. The valuation may be carried out by a registered securities dealer or in accordance with the procedure prescribed in the Companies Act and relevant regulations.

Distribution of shares:

Once the amendment is approved, the company will distribute the shares to the creditors or debenture holders in accordance with the terms of the amendment. The classification may be based on applicable laws and regulations, including those relating to the provision of securities. 

Issue of Bonus Shares:

Which is the issuance of bonus shares as per the Companies Act 2013:

In India, the Companies Act 2013 provides for the issuance of bonus shares to the existing shareholders of a company without any consideration Bonus shares are issued as compensation to the existing shareholders and usually accompanied by investments in the company. Here are the highlights of the exit.

Authority to Issue:

Generally, the authority to issue bonus shares rests with the board of directors of the company. The Board may issue bonus shares subject to the approval of the shareholders at a general meeting. If required by the articles of incorporation or other laws,

Source of income:

Bonus dividends are paid out of company profits or accumulated funds, such as securities premium account or capital redemption reserves, not income from new capital issues.

Consent:

If bonus dividends are required by the articles of association and other by-laws, shareholder approval may be required at a general meeting, but if the articles authorize the company to issue bonus dividends without shareholder approval, the board may issue them after their minds have been used.

Proportional Issue:

Bonus shares are usually issued to existing shareholders in proportion to their existing shareholding. For example, if a company announces a bonus dividend at a 1:1 ratio,. Then each shareholder will receive one additional share for every share held.

Accounting Treatment

The issuance of bonus shares requires appropriate accounting procedures to reflect an increase in the company’s capital stock and a corresponding decrease in reserves.

Tax implications:

Bonus dividends are generally not taxable in the hands of shareholders, as they are issued without any consideration. However, if they sell their bonus shares in the future, shareholders will be required to pay capital gains tax.

Disclosure:

Companies must disclose the details of the bonus grant in their financial statements, including the number of bonus shares issued, the ratio of the bonus grant, and any other relevant information required of companies, including under legal and accounting standards.

Disclosure Requirements:

Comply with any disclosure requirements under applicable legal guidelines and regulations by filing the necessary documentation with the listed exchanges, if appropriate.

Compliance:

Ensure compliance with all legal requirements, including reporting, maintenance of legal documents, and ongoing corporate governance responsibilities.

Conclusion:

Whenever a company with paid up share capital stock decides to increase the listed share capital of the company at any time, any of the above methods may be used to increase the capital stock of the company. Contact the expert team at Legal Chalo now for more information.

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