This is a question that has always bothered me and which I have never been able to answer (self satisfactorily) for my clients: For a Private Company, when the directors can lend money to the company in the form of Unsecured Loan, why should they pay heavy stamp duty on authorized capital? Why not keep authorized and paid up capital at minimum of Rs. 1 Lacs and bring in money as an Unsecured Loan?
(I am aware of the debt equity ratio being sacrificed which maybe looks bad from a finance point of view for lenders, but this is not a valid answer for cash rich / service based companies that don't want to take loans, and besides, there are ways to get around this as well.)
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Why pay stamp duty on authorized capital when private companies can take loans from directors
Replies (1)
small companies do apply this technique and is very practical.
But, for bigger companies, this technique is not useful. when ever u need to issue right shares or make private placement, u need to increase your authorized capital.
In a long-run, a company can not depend only on directors money, especially in a case when the directors are not from promoters family.
But, for bigger companies, this technique is not useful. when ever u need to issue right shares or make private placement, u need to increase your authorized capital.
In a long-run, a company can not depend only on directors money, especially in a case when the directors are not from promoters family.
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