• Infuse Capital into my start-up

I jointly own a Private limited company (Registered in June 2020) with 2 Directors(including myself) with equal (50%) shares in the company with Authorized and Paid-up capital of Rs. 1,00,000/- each. We want to infuse capital of Rs. 15 lakhs (approx.) in the company (Rs. 7.5 lakhs by each Director). These funds are borrowed from our respective banks on our personal capacity and not by the company, since its very difficult to get finance from Banks for a startup in COVID times. Therefore, I want to know how we can infuse borrowed capital into our company as I understand a Director has to give declaration that, 'that amount is not being given out of funds acquired by him by borrowing or accepting loans or deposits from others'. So can we increase the Authorized capital to day Rs. 15 lakhs and infuse the capital into the company? Are there any other legitimate ways of infusing capital into our company, Please advise.
Asked 1 month ago in Corporate Tax

I think there is no restriction in accepting deposit as such there are some conditions which one needs to fullfill under section 73(2) of companies act if it wishes to accept loan from director who are member from their borrowed funds.

 

Taking loan would be easy I guess as compared to increasing Authorized capital.

 

Hope you find the information helpful if you do please rate it 5 and provide your valuable feedback for my improvement.

Thank you

Naman Maloo
CA, Jaipur
3602 Answers
39 Consultations

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Please let me know the purpose of infusion. There are various ways depending upon the purpose.

Ruchi Goel Anchal
CA, Gurgaon
362 Answers
2 Consultations

5.0 on 5.0

Hi

Your understanding is correct. You can not provide loan to the company by your borrowed funds. As per my understanding you should increase Authorized capital. 

For further discussion please have a phone consultancy. 

Karishma Chhajer
CA, Jodhpur
2167 Answers
15 Consultations

5.0 on 5.0

Hi

you are right a director cannot give loan to A company By borrowed funds , but if you had capital in your name and as and when required if you can confirm amount given as loan is from income not borrowed then you can easily introduced fund into company 

if you had any doubt then you can book a consultation for detailed discussion 

Lalit Bansal
CA, Delhi
725 Answers
47 Consultations

5.0 on 5.0

Hi,

 

Some of the options for raising capital are

1. Infuse equity capital - as mentioned by you.

 

2. Allot preference shares

 

3. Allot debentures (convertible/ non convertibles)

 

Declaration which you are talking about needs to be given only in case of loan and not in case of equity/preference shares.

Lakshita Bhandari
CA, Mumbai
5160 Answers
348 Consultations

5.0 on 5.0

The best way would be to take loan in company directly although it's a new company but you can take loan and make the director as a guarantor of loan.

Naman Maloo
CA, Jaipur
3602 Answers
39 Consultations

5.0 on 5.0

Dear Sir,

 

You can give a loan to your company as a Directors Loan. If you inject capital by increasing Capital then this requires a lot of compliances, instead you can provide a loan to the company in your name and since it is a Private Limited Company Provisions of Sec 180 of companies act 2013 is also not applicable on the company.

 

You Have to  just report this transaction to ROC at the time of Filing of Annual Return.

 

Thanks and Regards

Shiv kumar Agarwal

Shiv Kumar Agarwal
CA, Delhi
475 Answers
74 Consultations

5.0 on 5.0

Dear Sir,

 

Hope you are doing well !!

 

There are multiple ways of injecting funds in the business, like equity, loans, hybrid instruments or sales, trade credit etc. In your case, since you don’t want to raise your authorized capital, and being a startup, assuming you don’t have much of sales etc. , the only way is to provide secured or unsecured loan to the business.

 

So, you can loan funds to your startup without touching the equity capital. In case you do touch equity, ensure sufficient premium without disturbing the no. of equity, as much as possible.

Payal Chhajed
CA, Mumbai
4796 Answers
90 Consultations

5.0 on 5.0

Declaration would be required only in case of loan and not in case of equity/preference shares.

 

It is advisable to take a phone consultation for detailed discussion.

Payal Chhajed
CA, Mumbai
4796 Answers
90 Consultations

5.0 on 5.0

You can give as unsecured loan to the company and agree upon some interest to be paid to you.

Ruchi Goel Anchal
CA, Gurgaon
362 Answers
2 Consultations

5.0 on 5.0

Hi

 

You can raise fund in company by issuing equity share or preference share or debentures or taking secured or unsecured loan but funding by your borrowed fund is not appropriate.

Karishma Chhajer
CA, Jodhpur
2167 Answers
15 Consultations

5.0 on 5.0

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