Clarification on Documentation of Paid-Up Capital Contribution by Directors

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Two directors of a new company need to document their equal contribution of £50,000 paid-up capital, where one director initially paid the full amount. The advice suggests creating a signed declaration between the directors outlining the agreement and reimbursement plan. Additionally, a board resolution should be passed to formalise this arrangement, ensuring compliance with the Companies Act, 2013.

Amstar Maverick

Amstar Maverick (Querist)
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26 November 2024 We are two directors of a newly incorporated company currently completing post-incorporation compliance, including INC-22A. Our paid-up capital is ₹50,000, contributed equally in a 1:1 ratio, i.e., ₹25,000 each. For convenience, one director issued a cheque for ₹50,000 to the bank, while the other director transferred their share of ₹25,000 to the director who issued the cheque.

How can we document this arrangement to prove that both directors contributed equally to the paid-up capital? Is the solution of providing bank statements and a declaration sufficient to meet compliance and legal requirements under the Companies Act, 2013?

We would appreciate your guidance on this matter to ensure proper documentation for post-incorporation filings.

Dhirajlal Rambhia

Dhirajlal Rambhia (Expert)
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26 November 2024 To document the internal understanding and the arrangement between the directors, you can have both directors sign a declaration stating:

That both directors have agreed on the split of ₹50,000 into ₹25,000 each.
That Director A has paid the full amount on behalf of both directors.
That Director B has reimbursed or will reimburse Director A for their share of ₹25,000 (or has agreed to transfer the amount within a reasonable timeframe).
This declaration should be signed by both directors to affirm the arrangement and make it legally binding between them.
While the solution of providing bank statements and a declaration is a reasonable way to document the contribution arrangement, it is important to also formalize the understanding between the directors through a board resolution. The bank statement alone may not be sufficient, as it does not explicitly clarify the agreement between the two directors regarding the division of the capital.

A declaration and a board resolution should together create a clear record of both directors’ contributions to the paid-up capital, and this will help ensure that you meet the legal requirements under the Companies Act, 2013. If needed, the declaration can also be referenced in the shareholder register and share allotment records.

Amstar Maverick

Amstar Maverick (Querist)
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26 November 2024 thanks a ton for the detailed advice.

Dhirajlal Rambhia

Dhirajlal Rambhia (Expert)
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26 November 2024 You are welcome.

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