Description
Increase Authorised Share Capital
Each business needs additional 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 long run, the company will require more funds. For a Private Limited Company, this can be done by increasing the authorised 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 authorised capital?
According to Section 2 (8) of the Companies Act, 2013 “Authorised Capital” is the capital that is authorised 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 authorised capital. In case the company has to expand the business infusing more funds than at first, the company has to increase the authorised capital by following the steps that are mentioned in this article.
Authorised Share Capital increase
A company may need to increase the authorised share capital before it is issuing new equity shares and increasing the paid-up capital. As authorised 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 authorised capital. Hence, if the company has authorised 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:
- Increasing the Authorised share capital and issuing new shares (or)
- Transferring shares from the existing shareholders to the new shareholders.
In most cases after the new shares are issues the authorised capital increases. Connect with our expert at info@taxology.co.in for assistance with increasing the authorised share capital.
How to increase the authorized share capital of the company?
Verify AOA of the Company
Before starting with the procedures for increasing the authorised share capital it is necessary to verify the AOA to ensure that there is a provision in the Articles of Association referring to the increase of the authorized share capital. If there is no such provision, then the company must first make changes to the AOA of the company.
Note: Most of the AOA’s have the provision for increasing the authorized share capital of the company.
Convene a Board Meeting
It is necessary to convene a Board meeting by providing notice to Director to increase the authorised share capital of the company. At the Board meeting, it is necessary to obtain approval from the Board of Directors for increasing the authorized share capital.
After this whole procedure, a date should be fixed to conduct an Extra-Ordinary General meeting to obtain the approval of the shareholders for increasing the authorized share capital and make changes to the MOA of the Company.
At last get the approval of the Board of Directors, the company secretary who is present at the meeting to present the notice of Extraordinary general meeting to the shareholders. Basing the approval, the notice of extraordinary general meeting should be presented to all the shareholders, directors, and auditors of the company.
Extra-Ordinary General Meeting
Conduct the extraordinary general meeting and obtain the approval of the shareholders to increase the authorized share capital on the time, date, and place that is mentioned on the notice.
The approval of the shareholders to increase the authorized capital must be in the form of an ordinary resolution.
File ROC Forms
- Notice related to the Extraordinary General Meeting
- Authorized True copy of the ordinary resolution
- The changed Memorandum of Association (Which depicts the higher authorized capital)
Allotment of Shares
Once the authorised share capital is increased the paid-up share capital of the company can be increased by issuing the fresh equity shares.
Increase Authorised Share Capital Plans
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General questions
The authorized share capital of the Company is mentioned in Clause V of the MOA.
Form MGT 14 and SH 7 are required to be filed with the Registrar within 30 days from the date of passing the resolution for the increase in authorized share capital.
Private Limited Companies are required to have a minimum authorized share capital of Rs.1 lakh and Rs.5 lakh for public limited companies.
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