Increase Authorised Share Capital
Introduction
Each business needs more funds over time to run business. These funds can be required on a long- and short-term basis. A short-term need can be satisfied by taking loans and advances. But for the run, the company will require more funds. For a Private Limited Company, this can be done by increasing the authorized capital of the company. Since the private limited company is governed and regulated under the Company Act to make changes in the structure it is necessary to follow the Act and the rules stated.
While registering the Private Limited Company the authorized and paid-up capital is specified in the MOA of the company. The company can therefore issue new shares within the limit of the authorized capital mentioned in the MOA. If the company wishes to issue more shares than the limit that is specified then amendments need to be done in the MOA.
What is authorized capital?
According to Section 2 (8) of the Companies Act, 2013 “Authorized Capital” is the capital that is authorized by the memorandum of the company to be the maximum amount of the share capital of the company.
The company can expand its business to the level of the authorized capital. In case the company has to expand the business infusing more funds than at first, the company has to increase the authorized capital by following the steps that are mentioned in this article.
Authorized Share Capital increase
A company may need to increase the authorized share capital before it is issuing new equity shares and increasing the paid-up capital. As authorized share capital is the total value of the shares a company can issue. The paid-up capital is the total value of the shares of the company that have been issued.
The Paid-up capital does not exceed the authorized capital. Hence, if the company has authorized capital of Rs.10 lakh and paid-up capital of Rs.10 lakhs would like to induct new shareholders then it can be done by:
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Increasing the Authorized share capital and issuing new shares (or)
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Transferring shares from the existing shareholders to the new shareholders.
In most cases after the new shares are issues the authorized capital increases
Checklist For Increasing Authorised Capital
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Check the provisions of the AoA to increase authorised share capital
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If the AoA does not permit an increase, then the AoA must be modified as per Section 14 of the Companies Act of 2013
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Issue a notice for calling a board meeting to modify the AoA in order to approve the increase in authorised share capital
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Issue a notice for calling an extraordinary general meeting to modify the AoA in order to approve the increase in authorised share capital
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Issue the notice at least 7 days before the board meeting and 21 days before the EGM.
Benefits
Increases Share Capital
A company can raise whatever authorised capital as they decide upon and the same will be mentioned in the MoA with revisions. Hence, increasing authorised capital has an incremental effect on the overall company share capital.
Enhances Borrowing Capacity
With the increase in share capital, the company’s overall net worth also increases. This further enhances the borrowing capacity of the company.
It could invite investments as the same can be easily accommodated if there is enough authorised capital.
Documents Required
The documents must be filed with the MCA within 30 days after obtaining consent from the shareholders for the share capital increase. The standard resolution for private firms is merely SH-7, and MGT-14 is not required.
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Digital signature certificate: A copy of a DSC from any authorised director of the company
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Memorandum of Association: A copy of the modified or latest version of the MoA
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Articles of Association: A copy of the modified or latest version of the AoA
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Certificate of incorporation: A copy of the company’s incorporation certificate
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PAN card: A copy of the company’s PAN card.
Process to Increase Authorised Share Capital
Hence the authorized share capital of the company can be increased at any time, subject to the constraints and clauses dictated by section 61 (read with section 13 and 14) of the Companies Act, 2013.
Step 1- Verifying approval within the Articles of Association
Section 61 of the Companies Act, 2013, orders that for expanding the Authorised offer capital, approval in Articles of Association is a pre-condition. Hence verifying that the necessary provisions are spelled out within the Articles is a pre-requisite to increasing authorised share capital.
In case the Articles do not approve an increase, it is then incumbent to amend them to allow the same before proceeding, as per the provision of Section 14 of the Companies Act, 2013. The Article of Association should be amended by a special resolution.
Step 2- Board meeting to notify the incidence of EGM
A board meeting is called wherein it is decided that an EGM is to be held to discuss and vote on the matter of raising authorised share capital. Once the date, place, and time of the EGM are agreed upon by the Board, a notice for the same is issued to every member/shareholder, director, auditor of the company, who will thereafter vote upon the matter of raising authorised share capital, as per Section 101 of the Companies Act 2013.
Moreover, the notice must consist of the voting method that is to be utilized for passing the special resolution to increase the authorised share capital of the company, and the explanatory statement pursuant to Section 102 of the Companies Act is to be enclosed as well.
Step 3- Extraordinary General Meeting
Once notice of the impending EGM has been sent out and the meeting is in session, the matter of increasing authorised share capital is deliberated upon and then voted upon in the manner set forth in the notice for the incidence of the EGM. The Ordinary Resolution under section 61(1)(a) of the Companies Act, 2013, is then passed to increase in authorised share capital of the Company.
Step 4- ROC Form documenting
Within a time frame of 30 days of the passing of Ordinary Resolution, Form SH-7 must be filed with the concerned Registrar of Companies (RoC) along with the necessary fees and attachments as prescribed by Section 64. In addition to the altered MoA and AoA, the following attachments are required to be submitted along with e-form SH-7
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Board Resolution for increase in authorised share capital;
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Board resolution for modification in the capital clause of Memorandum of Association;
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Shareholders’ Resolution that has been passed in the EGM.
The RoC will then check the forms and attached documentation. If all necessary requirements are fulfilled, RoC shall approve the Increase Authorised Share Capital.
DISCLAIMER- These materials are public information and have been prepared solely for educational purposes. These materials reflect only the personal views of the author and are not individual legal advice.
It is understood that each case is fact specific and that the appropriate solution in any case will vary. Finally, the owner will not be accountable for any loses injuries or damages from the exposures or usage of this information