Hi Experts,
I seem to have run into a wall.
I find something quite paradoxical between the Paid-Up Capital and the Subscripttttttion Clause in the Memorandum of Association for a Private Limited Company incorporation.
POINT A : The Minimum Paid-Up Capital for a Private Limited Company at Registration is Rs. 1,00,000/-.
POINT B : Minimum number of Subscribers for a Private Limited Company is 2.
POINT C : Each Subscriber must take at least One Share.
Lets say a Company, XYZ Pvt. Ltd, in the process of incorporation, has only TWO SUBSCRIBERS, who will again themsleves be the Directors. In its MoA, it sets its Authorised Share Capital to Rs. 1,00,000/-, i.e. the minimum that is required by law as Paid-Up Share Capital. Further, it divides the entire Authorised corpus into 10,000 Shares of Rs. 10/- each.
As per POINT C above, each subscriber needs to take Only One Share. Great ! Each of them does just that, and so the total number of Shares taken up by the subscribers is ONLY 2.
Which, translated, means, the total Paid-Up Capital of the Company XYZ Pvt. Ltd. becomes 2 x Rs. 10/- = Rs. 20/-.
SO HOW IS THE COMPANY EVER GOING TO RAISE THE MANDATORY PAID-UP CAPITAL OF RS. 1,00,000/- ?
AS AN ADDITIONAL EXAMPLE, I WOULD LIKE TO PROVIDE A LINK FOR A SAMPLE MEMORANDUM OF ASSOCIATION OF A COMPANY NONE OTHER THAN --------- "SATYAM" -------------- PLEASE CHECK IT OUT AT -
https://contracts.onecle.com/sify/memorandum.1995.04.11.shtml
IN THIS EXAMPLE, NEAR THE VERY BOTTOM, UNDER SECTION "V" THE SUBSCRIPTION CLAUSE FOR THE INCORPORATION IS GIVEN. IF YOU NOTICE, THE THREE SUBSCRIBERS TOGETHER TAKE UP ONLY 230 SHARES, EACH VALUED AT Rs. 10/-. WHICH MEANS, THE TOTAL PAID-UP CAPITAL OF THE COMPANY COMES TO ONLY 230 X Rs. 10/- = Rs. 2,300/-, A FAR CRY FROM THE Rs. 5,00,000/- WHICH A PUBLIC LIMITED COMPANY IS REQUIRED TO HAVE AS PAID-UP CAPITAL. I AM SIMPLY APPLYING THIS TO THE SITUATION OF A PRIVATE LIMITED COMPANY XYZ Pvt. Ltd., AND IN MY ORIGINAL EXAMPLE FOR XYZ Pvt. Ltd. ABOVE, THE SAME DEFICIENCY IN PAID-UP CAPITAL SEEMS TO EXIST !
SO MY QUESTION IS - DON'T THE POINTS A, B and C MENTIONED ABOVE CONTRADICT EACH OTHER ?
BUT THE WORLD IS RUNNING ON THESE PRINCIPLES, SO WHAT IS IT THAT I'M NOT ABLE TO UNDERSTAND ABOUT PAID-UP CAPITAL ? OR WHAT AM I UNDERSTANDING WRONG ?
OR IS IT NOT NECESSARY FOR THE SUBSCRIBERS TO ACTUALLY PAY UP THE PAID-UP CAPITAL; ONLY A SYMBOLIC MENTION IN THE MoA AND THE FORM 1 OF REGISTRATION AT RoC THAT SUCH PAY-UP HAS BEEN DONE ENOUGH ? IF THAT IS SO, THEN WHAT IS THE NECESSITY OF POINT A IN THE COMPANIES ACT - "The Minimum Paid-Up Capital for a Private Limited Company at Registration is Rs. 1,00,000/-" ?
OK, ONE MORE THING - I AM EXTREMELY UNCOMFORTABLE WITH ONE-LINERS, SO PLEASE PROVIDE ME WITH DETAIL, AND LOTS OF IT !
Hearty Thanks to All in Advance,
Summit.
CAclubindia
