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Share capital v/s share premium

Abhishek Mehta (Director) (31 Points)

18 August 2012

Dear Experts,

I have formed a company with share capital of 1 lac. But for doing the business, I need 1 crore to be pumped into the company.

1. Is raising the share capital the only option available? My CS tells me that the cost for same would be 1.75 lacs considering the stamp duty. For AoA Rs 1000, per 5 lacs. and Stamp duty for Mumbai amounting Rs 1,50,000/-

2. Can I issue shares at premium and do business? Cant i issue shares for Rs. 990/- premium for my existing share capital of 1 lac, considering the order book i have? I need money for purchasing the raw materials.

3. Is there any option to save the costs of Rs. 1.75 lacs

Regards,

Abhishek Mehta

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4 Replies

CHIRAG (FINANCE AND ACCOUNTS) (36 Points)
Replied 20 August 2012

Kindly check the provisions u/s 56(2)(viib) effective from 01-04-2012 before issuing shares at an excess premium.

1 Like

Abhishek Mehta (Director) (31 Points)
Replied 20 August 2012

Originally posted by : CHIRAG
	Kindly check the provisions u/s 56(2)(viib) effective from 01-04-2012 before issuing shares at an excess premium.

Thank you Chirag. I went though the provision.

My basic reason for issuing share at premium is to avoid the 2% cost of RoC. It is too high in thin margin businesses.

I have an order book of 1 crore and for that i need to pump the money. But if i have to spend 2% to RoC, my margins get severly impacted. Is there a way out to bring in the capital and avoid this cost.

Can i issue shares at premium and avoid the fees for authorized share capital? Can i argue that based on my order book, I am issuing shares at premium? Is tht justified?

CS Ankur Srivastava (Company Secretary & Compliance Officer) (17848 Points)
Replied 20 August 2012

There are several ways for the inflow of cash... you can take the deposits from directors or relatives. It will not attract any cost, however, you have to pay interest.

1 Like

Abhishek Mehta (Director) (31 Points)
Replied 20 August 2012

Thank you Ankur. That is what i will have to finally resort too... but i was thinking whether there is any other structure i could infuse money... smething tht wud have the effect of share capital...

it would also help me strengthen my balance sheet and apply for facility from bank... preference shares, debentures, share premium... something tht wud not pinch me... and avoid unnecessary cost of RoC fees...