Increase Authorized Capital
A company requires financial resources to meet both short-term and long-term needs. It has the option to issue new shares, thereby raising additional capital to enhance its authorized capital. Authorized capital refers to the upper limit of share capital that a company is permitted to issue to its shareholders.
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Increase Authorized Capital
– An Overview
A company may be required to augment its authorised share capital prior to the issuance of new equity shares and the subsequent increase in paid-up capital. Authorised share capital represents the maximum value of shares that a company is permitted to issue, whereas paid-up capital denotes the total value of shares that have actually been issued by the company. It is important to note that paid-up capital cannot surpass authorised capital. Therefore, if a company possesses an authorised capital of Rs.10 lakhs and a paid-up capital of Rs.10 lakhs, and wishes to bring in new shareholders, it can achieve this by either
- Increasing authorised share capital and issuing new shares. (or)
- Transferring shares from existing shareholders to the new shareholders.
In most cases, new shares are issued and authorised capital is increased.
Verify AOA of the Company
Prior to initiating the process of increasing the authorized share capital, it is essential to review the Articles of Association (AOA) to confirm the presence of a provision that permits such an increase. Should there be an absence of relevant provisions regarding the increase of authorized share capital, the company will need to amend its AOA accordingly.
It is important to note that the majority of the Articles of Association (AOA) will include provisions that allow for the increase of authorized share capital.
Convene Board Meeting
To enhance the authorized share capital, it is essential to first organize a Board Meeting by notifying the Director. During this meeting, secure the Board of Directors’ consent for the increase in authorized share capital. Subsequently, establish a date, time, and location for an Extra-Ordinary General Meeting to seek shareholder approval for the proposed increase in authorized share capital and the amendments to the Memorandum of Association (MOA) of the company.
Lastly, ensure that the Company Secretary, who is present at the meeting, receives the Board of Directors’ approval to issue the notice of the Extra-Ordinary General Meeting to the shareholders. Following this approval, distribute the Notice of the Extra-Ordinary General Meeting to all shareholders, Directors, and the Auditor of the Company.
Extra-Ordinary General Meeting
At the specified time, date, and location indicated in the Notice of Extra-Ordinary General Meeting, convene the Extra-Ordinary General Meeting to seek shareholder approval for the increase of authorized capital. The shareholders’ consent for this increase must be obtained through an ordinary resolution.
File ROC Forms
Following the approval of the ordinary resolution during the Extra-Ordinary General Meeting, the company is required to submit Form SH-7 within 30 days of the resolution’s passage. In addition to Form SH-7, the appropriate government fee for authorized capital must be remitted, and the specified documents must be included.
- Notice related to EGM.
- Authorized True copy of Ordinary Resolution.
- Changed Memorandum of Association. (Showing higher authorised capital)
Should the procedures for augmenting authorized capital be adhered to as stipulated in the Companies Act and Companies Rules, the Registrar will grant approval for the filing and subsequently raise the authorized share capital of the company. The updated authorized share capital will be displayed on the MCA portal.
Allotment of Shares
Following the rise in authorized share capital, the company’s paid-up share capital may be augmented through the issuance of new equity shares.
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