Difference between shareholders loan and increase in share capital

Aspect Shareholdes loan / loan capital Share capital

Definition 1.The capital raised by borrowing is

referred as loan capital or loan

finance.

2. A company may raise loan

capital only by complying with the

rules and procedures with regard to

borrowing as prescribed in the Act

and the company’s constitutional

documents.

The third schedule contains clause

13, which empowers a company to

borrow or raise or secure

1. The amount of share capital is required

to state in the memorandum.

2. Increase in the share capital may enable

the company to increase its borrowing

capacity.

Procedure 1. A debenture may take one of

three forms:

(a) An acknowledgement of a debt

under seal.

(b) An instrument charging the

property of the company.

(c) An instrument charging the

property of the company with the

repayment.

2. A company that makes an

invitation to the public, to take up

debentures or accept money from

the public obliged to issue

document which acknowledge the

company’s indebtedness in respect

1. Increase the share capital by the

creation of new shares of such amount as

the company thinks expedient.

2. Table A. Article 40 (a) allows a

company, by ordinary resolution from

time to time to increase its share capital by

such sum to be divided into shares of such

amount as the resolution shall prescribe.

3. Increase of share capital merely

increase the amount of nominal or

authorized share capital of the company.

4. Not applicable for issued or paid up

share capital.

5. If the provision in Table A, is excluded

and article of association do not give

of the loan or deposit.

The debenture provision in Part IV

Division 4 of the Act apply to this

document.

Only public company may make

invitation to the public to lend to

them.

Private companies are required by

section 15(1) to have in their

Memorandum or articles a clause

prohibiting the issue of debentures

or accepting money from public.

authority, to increase company’s share

capital need to be done by special

resolution under section 31 (1) to provide

the relevant authority.

Cost 1. Calling a general meeting to consider an

increase of share capital, the notice

convening the meeting shall be specify the

proposed increase.

2. If a company has increased its share

capital beyond its registered capital, must

within 14 days after passing the resolution

authorizing the increase, lodge with the

registrar the notice of increase.

3. If there is a default, the company and

every officer of the company who is in

default will be liable to the fine.