Registration of all the companies is mandatory in India. There are plenty of benefits of incorporating the business like pay less taxes, protection of personal assets, transferable ownership, separate credit rating regardless of an owner’s personal score, increased durability etc.
Now the question arises is that “what is the capital requirement for the company registration?”
Before dealing with this question, first of all, we have to understand the term Authorized Capital and Paid up capital which is frequently used during registration of any private limited company.
The authorized capital of a company is the maximum amount of share capital for which shares can be issued by a company. It is generally mentioned in the Memorandum of Association of the Company and capital is usually Rs. 1 lakh to its investors. It may be increased or decreased by the company at any time with shareholders approval and by paying the additional fee to the Registrar of Companies.
Paid up capital of a company is the amount of money for which shares were issued to the shareholder for which payments was made by the shareholder. It is always less than the authorized capital as a company cannot issue shares above the authorized capital.
Earlier according to The Companies Act 2013 it is mandatory for all Private Limited Companies to have a minimum paid up of Rs. 1 lakh means at least Rs.1 lakh had to be invested in the company by the purchaser of the company shares by the shareholders to start a business.
But due to recent Companies (Amendment) Act, 2015 there is no minimum capital requirement as such. No minimum paid-up capital requirements will now apply for Private Limited Registration as well as public companies in India. Hence no burden of putting such huge amount into the company bank account. The amount can be introduced as per the convenience of the business owners.
Because of this amendment in the Company’s Act 2013 once again private limited company and One Person Company are back into fashion over the LLP (Limited Liability Partnership). Earlier LLP had an edge over the private limited companies when it came to this clause of Minimum Capital Requirements for a Private Limited Company or One Person Company. Now, most of the Startups and Entrepreneurs are choosing Private Limited Company instead of LLP. Because in case of LLP start up, they cannot raise the funds from the angel investor or Venture Capital Firms but Private Limited Company can raise funds. It now gives an edge to the Private Limited Company. So if you have not tight budget then you can always go for the private limited company instead of LLP Registration in India.
This is a welcome step of the Indian government to remove the provision of minimum capital requirement for registration, as many times new players cannot enter the market due to lack of enough capital requirement. But now due to this amendment, it is attracting new entrepreneurs to come forward and hence creating more employment in India.
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