Minimum paid-up capital criterion for registration of firms may go

Move aimed at enhancing ease of doing business and increasing registrations, which in May-Oct fell 35% from a year ago

The government has proposed removing the minimum paid-up share capital requirement to commence a business in India.

The Union Cabinet is learnt to have approved the proposal on “omitting requirements for minimum paid up share capital, and consequential changes”.

“This is being done to increase the ease of doing business,” said a senior government official who did not wish to be named.

According to the Companies Act, 2013, every company has to give a declaration to the Registrar of Companies (RoC), stating its paid-up capital is not less than Rs 5 lakh in the case of public companies (the listed ones, as well as those that have raised money from the market through debt); and not less than Rs 1 lakh in the case of private companies. This declaration is necessary for obtaining a commencement certificate for business.

According to experts, this is one of the provisions of the Companies Act, 2013, that had made setting up a company much more cumbersome than earlier.  

However, it is not yet clear how the government plans to practically implement this provision: The issue is about whether or not a company will be allowed to register with zero paid-up capital.

“The government can either decrease the minimum required amount or defer the time required to deposit the prescribed amount,” said Agam Gupta, co-founder of quickcompany.in, which helps entrepreneurs register their firms.

Lionel Charles, chief executive of indiafilings.com, which claims to register around 100 companies a month, said 80 to 90 per cent of his clients are middle-class people who find it difficult to show this much cash in their bank account.

“Such a step will surely help reduce another hassle in registering a company.”

“We are concerned as the number of companies being registered has fallen almost 40 per cent in the past six months — after the implementation of the new companies law,” said the official quoted earlier.

According to official data, 31,641 companies were registered in May-October this year, a drop of 35 per cent from 48,636 in the same period last year.

Similarly, the total authorised capital of the companies registered during May-October this year stood at Rs 14,771.24 crore, a decline of almost 24 per cent from Rs 19,409.46 crore in 2013-14. “Smaller companies, which were previously shying away from registration because of compliance issues, will now come back if the government removes this barrier,” said Sai Venkateshwaran, partner & head of accounting advisory services at KPMG in India.