Authorised capital

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Querist : Anonymous

Querist : Anonymous (Querist)

07 July 2013 What is authorised capital? What is its use for a company?How this raise problem in bank loan. How much authorised capital required for taking term loan of Rs. 1.00 Crore as the total project cost is Rs. 3-4 Crore?Please answer at the earliest.

Rashid Mehmood

Rashid Mehmood (Expert)
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07 July 2013 The authorized capital is the value of maximum shares that a company can float in the market or distribute among the shareholders. E.g. a company wants to have an authorized capital of 100,000 divided into 1000 shares of RS. 100 each. The declaration and maintenance of authorized capital is legal requirement and a company cannot be registered without declaring the authorized capital (except for Guarantee limited or non-profit companies).
The paid up capital is portion of authorized capital which has been paid by the members of the company i.e. the portion of shares purchased by the members out of the total available shares.
The authorized capital is only disclosed on the face of balance sheet and it is not included in any calculation of the shareholder’s equity.
The company uses the authorized capital to raise its funds by allotting shares out of the authorized capital.
It has nothing to do with the loan arrangements. There are several other calculations are considered by the bank including the paid up capital. Authorized capital is not used as basis for business evaluation for the loaning purposes.
To get loan of 3-4 caror depends on the “product” or facility you want to avail from the bank. There are different basis for project finance, long term loans, short term loans and over drafting facilities. For the project finance you need to declare the probable income of the project and bank will calculate the payback period for the same. Normally in case of project finance the debt burden is calculated at 50% to 60% of the net income. i.e. if your average income is 2,000,000 annual the 50% of the income will be 1,000,000 means, bank will consider your case for the amount of loan which is payable in loan repayment instalment of 1,000,000 annually for a specific time period. It means if you want to get loan for 5 years and your project income is 2,000,000 annually you can upto 5 million as loan.

Ajay Mishra

Ajay Mishra (Expert)
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07 July 2013 14. Presentation of the share capital
A company has to disclose its share capital in the various statements and returns viz Annual Return, Balance Sheet, Forms and various applications to be submitted to various authorities from time to time. It has to represent the status of share capital as per requirements, which may be shown as under:
14.1. Authorised
The capital clause of the Memorandum of Association of a company contains description of the authorised share capital. This is the capital with which a company is to be registered originally or the increased authorised share capital as the case may be. The company is required to pay adequate registration fee to the concerned Registrar of Companies.
14.2. Issued
Issued capital is a part of the authorised capital, which is offered for subscription in form of shares of the company. It also includes share capital issued for consideration otherwise than in cash.
14.3. Subscribed
It is a part of the issued share capital which has been subscribed by the public in case of a public limited company and includes shares purchased by the vendors.
14.4. Called up
It is the sum of total amount called on all shares comprised in the issued and subscribed capital. If the full value of the shares is called up on application then the subscribed capital and called up capital will be the same.
14.5. Paid up
This consists of the amount actually paid up or credited as paid up on the shares subscribed. Share premium received on issuance of shares are not considered in the paid up capital and hence, it is separately shown as share premium account in the reserves and surplus.
14.6. Uncalled
Uncalled capital is a part of the subscribed capital which has not been called up but it may be called up in future.

Ajay Mishra

Ajay Mishra (Expert)
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07 July 2013 The authorised capital is not playing major role for taking bank loan, however a company can take bank loan on the basis of paid up capital and free reserve of the company.

Generally a company can not take bank loan in excess of paid up capital and free reserve of the company, if they want to take in excess loan, you will take approval from shareholders under section 293(1)(d).

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