USE OF SHARE APPLICATION MONEY BY PRIVATE LIMITED COMPANY

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RAVI BHUSHAN

COMPANY SECRETARY

57 Points Joined May 2008

Sir,

If a private limited company has received a huge amount of share application money at very time since 2007 from Director and group companies, since than the Company has allotted shares to the directors only, now remaining share application money along with fresh share application money received is more than the authorised share capital and the company has already used the said amount as bank balance and cash in hand is less than share application money received, the Company is intended to change its name, I seek kind suggestion in the regard of share application money,

1. Can Private Limited Company keep share application money for a unlimited time, if no than what should be the time limit?

2. Can share application money exceed Authorised Share Capital?

3. Can the Company accept further share application money without allotting or refunding application money received earlier?

4. Having probability to issue objection by ROC wile approving Change of Name.

waiting for kind suggestion in this regard

Regards

Ravi Bhushan Kumar

CS Trainee

Replies (12)

S.Srinivasaraghavan

Chief Financial Officer and Co

11318 Points Joined September 2007

1. No time limit specified in Companies Act, in the case of Pvt ltd. But the general law of contract will be applicable. That is without allotting shares you can not use the money.

2. Application money can exceed Authorised capital

3. No not advisable.

4. I do not think this as an issue with ROC

RAVI BHUSHAN

COMPANY SECRETARY

57 Points Joined May 2008

Thanks Sir

Kalpesh

Job

33 Points Joined August 2008

According to Section 205, we have to deposit dividend amount remaining unclaimed and unpaid for seven years from the date they first become payable within 30 days to Investors Education and Protection Fund. But if we pay the amount after 30 days what would be the legal consequences.

Mohit Sureka

CS final CA

213 Points Joined May 2008

whre did dividend come here ?

Gagan deep goyal

Chartered Accountant

25 Points Joined November 2009

Opinion on Share Application Money:

	*The Issue arise as the case where the the Share Application Money accepted by the company exceeds its authorized Share Capital?*

1.	The Explanation to Section 58A of the Companies Act, 1956 defines ‘deposits’ to mean any deposit of money with , and include any amount borrowed by the company, but will not include such categories of amounts as may be prescribed by the Central Government in consultation with Reserve Bank of India. There is no specific provision either in the Companies Act, 1956, or in the Companies (Acceptance of Deposits) Rules, 1975, whereby a private company is barred from accepting deposits.

	However, Section 3(1)(iii) ( c ) of the Companies Act 1956 only prohibits any INVITATION to the public to subscribe for any shares in or debentures of the company. Section 3(1)(iii)(d) prohibits any invitation or acceptance of deposits from persons other than its members, directors or their relatives.

	Thus it is clear from the above para that the private Company may accept deposits from the members of the public or from the members, directors or their relatives but Should Not INVITE deposits.

2.	It Should be noted that according to Rule 2(b) (ix) of the companies (Acceptance of deposits) Rules/ 1975, any amount received from the person who at the time of receipt of the amount was a director or a shareholder of the private company, then such amount will not be treated as deposit within the meaning of deposit rules.

	The only Condition applicable for acceptance of Such deposits from the shareholders, directors of the Private company is that the concerned person has to give a declaration in writing to the effect to the company that the amount was not being given out of the borrowed funds or from the funds accepted from the others.

3.	As is evident that the Company has accepted the Share Application Money beyond Authorised Share Capital, we may record the above transaction i.e. receipt of share application money and assurance given to proposed allottee in the board meeting minutes. In other words simple noting of such receipt in the board minutes would be enough. Receipt of share application money over and above of Authorised capital is not a default at all. Reason being share application money is not in the nature of paid up capital unless and until allotment of share against the share application money. In other words only after allotment of share you can consider such share application money as paid up share capital. But before passing allotment resolution you have to increase your Authorised capital. Regarding time limit to convert such share application money into capital the law is silent. Further collect the share application form from the proposed allottee for your record.

Raj Kumar

Not

85 Points Joined August 2009

Hello,

I got doubt regarding, share application money received by private limited company and kept by them for 2 years and till date they have not alloted shares. Whether these money received on application should be deposited in separate bank account and is it compulsory for private limited company,

Payal Jain

152 Points Joined April 2010

There is no specific rule for the time limit of share application money.

But in general practice it should be transferred within 3 Years.

If i m wrong, please correct me.

Regards,

Payal

AMIT ADHIA

110 Points Joined November 2008

Whether share application money can be used for giving loans ?

Mridul Gupta

43 Points Joined September 2010

Mr. S.Srinivasaraghavan this question is for you..

According to you , a company cannot take share application money more than its remaining paid up authorised share capital.

For example

Authorised capital is Rs. 5 crores

Paid up is Rs. 2.65 crores

Share application that can further be taken is Rs. 2.35 crores including premium amount or excluding premium account??

the Company has already allotted shares at a premium of Rs. 190/- in the past. and the intention in future is also to allot at the same price i.e 210+10.

now according to me, the company can take share application money upto

2.35crores* 220 divided by 10 =51.70 crores

susendrashetty

student

21 Points Joined September 2009

can private company can hold application money rceived from directors for unlimited time?

Guest

Yes it can hold for unlimited time period share application money whether received from director or shareholder or outsider.

Ankit Garg

Article Assistant

28 Points Joined May 2012

I am agreed with Mridul Gupta. A company can not take share application money exceeding the authorised capital. Amount of Share Application Money may be excluded Share Premium.