Increasing Paid up Share Capital of the Company

Paid up share capital is the part of total called up amount which 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. Company cannot issue paid up capital more than the authorized capital of the company. However, a company may increase its paid-up capital, then it can do so by altering capital clause of memorandum.
In this article, we will discuss about the method, procedure and benefits of increasing paid up capital of a company.

Which companies can increase its paid-up capital?

Both public limited company and private limited company are allowed to increase paid up capital. However, there are restrictions on private limited company that they can not issue shares to general public

Benefits of increasing Paid up Capital of the Company

Following are the various benefits of increasing capital :-

• Growth :- By increasing the capital you can grow the business. If you have idea of growing business then you need to infuse a good amount of paid up capital into your business.
• Innovation :- More capital will result in tapping more ideas related to invention. Hence, by increasing the paid up capital, the company can become more innovative
• Competition:- By increasing capital we can easily give competition to the market as technology is changing very fast. Hence, to compete and to stay in market, more capital will be required.
• Changing environment :- With the  change in environment,  market is changing very fast. Hence, to give more satisfaction to consumer we have to make our business better and for that we have to need increase our paid up capital.

How to increase Paid up Capital of Company?

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

• Private placement
• Right issue
• Preferential basis
• Sweat equity shares
• Conversions of loans or debentures into shares
• Issue of bonus shares

Now let’s try to discuss them in brief:

• Private placement: Private placement is a method through which offering of securities can be made to not more than 200 persons in the aggregate in a financial year. This mainly include family ,friends etc. Excluding qualified institutional buyers and employees of the company. Private placements are exempt to issue prospectus but they are issued by offering an offer letter.
• Right issue of shares: It refers to an invitation to subscribe shares to the existing shareholders at discount rate .In this method when company wants to rise paid up capital company, it goes to existing shareholder of the company rather than public. By this company give chance to existing shareholder to get share at discount rate.
• Preferential basis: In this method company issue shares or other securities to selected group of persons .Value of offer per person shall not be less than Rs. 20000/- of face value. It must be authorized by Article of association of the company and approve by shareholder at Annual general meeting .
• Sweat equity shares: These shares are issued to directors or employees at discount or consideration other than cash for providing known how or making available rights in the nature of intellectual rights or value additions.
• Conversions of  debentures into shares : Through this method, a company may convert its  debentures into shares by passing a special resolution. Also, in this money invested cannot be refunded until liquidation.
• Issue of bonus shares: it is an offer to issue additional shares to the existing shareholders. It is also called scrip issue. It must be authorized by company articles of association.company can simply issue bonus share by its free reserves. For example , company will issue 1 share on every  5 shares hold by each shareholder of  the company.

Procedure to increase Paid up share capital of the company

• Hold a Board Meeting and Pass board resolution at board meeting
• During board meeting, decide the way to increase capital
• Send notice to all member for calling general meeting and approve the same by passing members resolution.
• Submit relevant form to MCA.
• Within 60 days from application money allot shares to the shareholders.
• After allotment company shall issue share certificate within 2 months of allotment to all the shareholder of the company.

Conclusion

Whenever the Company having a paid-up share capital, at any time decides to increase the subscribed Share capital of the Company, any one of the above methods can be used for increasing the share capital of the Company.

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