Net worth (Corporate Law)

This query is : Resolved

( Author )
21 July 2012

So far a closely held Private Limited Company is concerned whether the following will be considered within the definition of Net Worth or not as under:-

i) Share Premium Account.

ii)Unsecured Loans/Deposits from Directors.

This is needed for computing the Net Worth in addition to share capital as company is incurring Book losses since last 2 years for the purposes of reporting in CARO,2003 that accumulated Losses of the Co. should not be more than 50% of Net worth.

CS Ankur Srivastava

( Expert )
24 July 2012

Under section 2(29A) of the Companies Act, net worth means the sum total of the paid up capital and free reserves after deducting the provisions or expenses as may be prescribed.

Explanations:- for the purpose of this clause, free reserves means all reserves created out of the profits and share premium account but does not include reserves created out of revaluation of assets, write back of depreciation provisions and amalgamation.

CS Ankur Srivastava

( Expert )
24 July 2012

2*[(ga) of the Sick Industrial Companies (Special Provisions) Act, 1985 "net worth" means the sum total of the paid-up capital and free reserves.

Explanation.-- For the purposes of this clause, "free reserves" means all reserves credited out of the profits and share premium account but does not include reserves credited out of re-evaluation of assets, write back of depreciation provisions and amalgamation.

CS Ankur Srivastava

( Expert )
24 July 2012

Therefore, only paidup capital and free reserves including security premium shall be included in the Net Worth but not the unsecured loand.