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ramesh (n/a)     14 July 2008

Capital Contribution


I have a case which specially very rare heard in India. In some of the countries corporate law allows specifically or effectively for some form of Capital contribution which is both a legal and accounting defined term. This refers to when a shareholder donates cash or assets or give up rights against an advance or a loan for no addittional capital (it is effectively) a gift to the company for which no gift tax is charged.

The said amount goes to reserves of shareholders fund usually called "Other Reserves" or "Capital Contribution Reserves" whatever the local accounting rules called.

This normally requires the shareholders to resolve to do the contribution, then write to the company, then the company board to acknowledge through resolution and write back to the shareholder once amount received.

Does our Indian Law provides similar proceedure for the shareholders to give up rights under an advance?

Can any body help me to get this information please

Many thanks in advance




 2 Replies


There is no such provisions under the companies act, 1956. A share holder cannot contribute to the capital as gift or free. However, a shareholder can deny his rights on the existing share capital i.e. he can refuse to take bonus shares.




Company Secretary in Practice, Hyderabad

ramesh (n/a)     16 July 2008

Dear Mr. Satish

Thanks for your reply, can I ask one more query please.

Here the share holder refers to our parent company which is based in UK. The parent company has sent some money towards advance for the software exports but unfortunately the particular project could not materialse and this money could not be utilised. Now can we convert this amount to our capial though we have not intimated to RBI nor it is mentioned in the FIRC that the said amount has come for Share Capial Amount.  Does the Companies Act has any provision wherein the said money which came as advance be convereted in capital contribution by giving up the right on advance?

Please advice




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