Company Incorporation
This query is : Resolved
31 January 2021
Sir,
Can initial share capital be paid in kind? suppose 10 person wants to create a company and wants to transfer land in the name of the company as share capital. is this allowable?
Can initial share capital be paid in kind? suppose 10 person wants to create a company and wants to transfer land in the name of the company as share capital. is this allowable?
06 July 2024
Yes, it is possible to pay initial share capital in kind, including transferring land to the company as share capital. This practice is known as issuing shares for consideration other than cash. Here is how this can be done in India, in compliance with the Companies Act, 2013:
Steps for Issuing Shares for Consideration Other than Cash
1. Valuation of Assets:
• The land or other assets being contributed must be valued by a registered valuer. The valuation ensures that the value of the land is accurately reflected in the share capital of the company.
2. Board Resolution:
• The board of directors must pass a resolution approving the issuance of shares for consideration other than cash and accepting the valuation of the land.
3. Shareholders’ Approval:
• The shareholders need to approve the issuance of shares for consideration other than cash in a general meeting.
4. Drafting Agreements:
• A formal agreement (e.g., a deed of transfer) must be drafted to transfer the ownership of the land to the company. This agreement will specify the number of shares being issued in exchange for the land.
5. Filing with the Registrar of Companies (ROC):
• Form PAS-3 (Return of Allotment) must be filed with the ROC within 30 days of the allotment. This form includes details of the allotment and the consideration received.
6. Issuance of Share Certificates:
• Share certificates must be issued to the subscribers in proportion to the value of the land contributed.
Compliance and Documentation
• Stamp Duty: Ensure that the appropriate stamp duty is paid on the transfer of land as per the applicable state laws.
• Land Transfer: The transfer of land must be registered with the relevant land registration authority, transferring the title of the land to the company’s name.
• Accounting Treatment: The company’s books of accounts should reflect the land as an asset, and the corresponding share capital should be recorded as equity.
Steps for Issuing Shares for Consideration Other than Cash
1. Valuation of Assets:
• The land or other assets being contributed must be valued by a registered valuer. The valuation ensures that the value of the land is accurately reflected in the share capital of the company.
2. Board Resolution:
• The board of directors must pass a resolution approving the issuance of shares for consideration other than cash and accepting the valuation of the land.
3. Shareholders’ Approval:
• The shareholders need to approve the issuance of shares for consideration other than cash in a general meeting.
4. Drafting Agreements:
• A formal agreement (e.g., a deed of transfer) must be drafted to transfer the ownership of the land to the company. This agreement will specify the number of shares being issued in exchange for the land.
5. Filing with the Registrar of Companies (ROC):
• Form PAS-3 (Return of Allotment) must be filed with the ROC within 30 days of the allotment. This form includes details of the allotment and the consideration received.
6. Issuance of Share Certificates:
• Share certificates must be issued to the subscribers in proportion to the value of the land contributed.
Compliance and Documentation
• Stamp Duty: Ensure that the appropriate stamp duty is paid on the transfer of land as per the applicable state laws.
• Land Transfer: The transfer of land must be registered with the relevant land registration authority, transferring the title of the land to the company’s name.
• Accounting Treatment: The company’s books of accounts should reflect the land as an asset, and the corresponding share capital should be recorded as equity.
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