How can a private company raise its share capital?
How can a private company raise its share capital?
FUNDING PRIVATE LIMITED
A private company can be easily established. You can register a private company with one lakh of authorised share capital and with two people. Only you are sufficient to register when you want to have one person company.
You may get the funds you need to run your business in a number of ways. Here in this article, I have discussed in detail about eligibility, sources, types of share that a private company can issue. Please go through one by one.
Section 2(68) of the Companies Act, 2013 defines private limited company. As defined by this section, non-trading of shares is a major characteristic of private company. In other words shares of private company are not traded in the market. It means that private company can not issue its shares to the general public.
Then how can a private company raise share capital
Private company can raise its share capital in any one of the following three modes:-
- Right issue. (Section 62(1)(a))
- Private Placement. (Section 42)
- Preferential Allotment (Section 62 (1)(c)
Right issue of shares means allotment of shares to existing shareholders of the company. Under the right issue, company allots shares based on the ratio of share holding. Thus, right issue of share is a right provided to existing shareholders to subscribe for the shares of the company.
The most frequent mode that companies use for issuing their shares is through private placement of shares. As per section 42, private placement means the issue of shares to a particular group of person through private placement letter.
Preferential Offer means an issue of shares or other securities, by a company to any select person or group of persons on a preferential basis at a pre-determined price.
Preferential Offer does not include shares or other securities offered through a public issue, rights issue, employee stock option scheme, employee stock purchase scheme or an issue of sweat equity shares or bonus shares or depository receipts issued in a country outside India or foreign securities.
Company wishing to issue shares must follow the procedure as prescribed under the act. The procedures may slightly vary based on the mode that a company opted for. And it equally affects the compliance procedures to follow.
