Answer By law4u team
Understanding Capital in a Company When we talk about starting a company, capital usually refers to the funds a company raises to start its operations, which is divided into authorized capital and paid-up capital. 1. Authorized Capital is the maximum amount of capital that a company is legally allowed to raise by issuing shares. 2. Paid-up Capital is the actual amount of money the company has received from shareholders in exchange for shares. Earlier, under older laws, there were strict rules about minimum capital: for example, private limited companies needed ₹1 lakh and public limited companies ₹5 lakh. But modern laws and reforms (like Companies Act 2013 and schemes like BNS/BNSS for startups) have removed these restrictions to make it easier for new businesses to start. Minimum Capital Requirements Today 1. Private Limited Company (Pvt Ltd) Under Companies Act 2013, there is no mandatory minimum capital. Technically, you can start with just ₹1 as authorized capital. Most entrepreneurs start with ₹10,000 or ₹1 lakh because: It makes it easier to open a bank account. It looks credible to investors or partners. Some government schemes or contracts may ask for a minimum capital. In BNS/BNSS frameworks promoting startups, the focus is on ease of registration and low financial barriers, so starting with minimal capital is perfectly acceptable. 2. One Person Company (OPC) OPCs are designed for single entrepreneurs. No minimum capital requirement. You can legally start with ₹1. OPCs are popular for small businesses and freelancers because they combine limited liability with simplicity. 3. Public Limited Company A public company still requires a minimum share capital of ₹5 lakh. This is because public companies can sell shares to the public, and regulators want a basic financial threshold to protect investors. 4. Limited Liability Partnership (LLP) LLPs combine partnership flexibility with limited liability. No minimum capital requirement. You can start with ₹1. Modern frameworks like BNS/BNSS encourage LLPs for startups due to simplicity, especially in service-based businesses. Why Capital Matters Even If It’s Minimal While the law allows ₹1 as capital, in practice, having a slightly higher capital is useful: Banking and finance: Banks often ask for a minimum capital for opening current accounts or getting business loans. Credibility: Investors and clients take a company with some capital more seriously. Compliance: Higher capital gives flexibility for initial expenses, salaries, and operational costs. For startups under BNS/BNSS schemes, the government is focused on reducing barriers to starting a business, so they recommend minimal legal capital and instead encourage proper planning of working capital and funding. Modern Perspective on Starting a Company Today, thanks to the Companies Act 2013 and startup-friendly reforms: Barrier to entry is extremely low. You can legally start with ₹1 as paid-up capital, file your incorporation, and run the business. The focus is on good governance, proper registration, and compliance rather than upfront money. Many startups raise capital later from investors, loans, or crowdfunding once they start operations. Summary Private Limited Company: ₹1 (legal minimum), but ₹10,000–1 lakh is common. OPC: ₹1 (no minimum capital required). Public Limited Company: ₹5 lakh minimum. LLP: ₹1 (no minimum capital required). Modern frameworks like BNS/BNSS encourage startups to focus on ease of incorporation and growth, rather than worrying about large initial capital. The legal system supports minimal capital, but practical business decisions often require more for smooth operations.
