The authorized share capital sets the upper limit on the number of shares a private business can issue. As per the 2013 New Companies Act, there is no mandatory requirement for a minimum increase in capital. The capital clause of the Memorandum of Association can be amended by the board through an ordinary resolution to issue additional shares or raise the authorized share capital.
The increment in share capital can vary among businesses and may change, subject to shareholder consent. For instance, if a company has an authorized capital of ₹2 lakhs, it implies it can issue shares up to ₹2 lakhs. However, this authorized capital can be adjusted as required. Consider a scenario where a company has an authorized capital of ₹1 lakh, but an investor intends to invest ₹1 crore. In such a case, the company can increase its authorized capital to ₹1 crore. This flexibility in adjusting the authorized capital facilitates the needs of the company.
Before issuing new equity shares and increasing the paid-up capital, a company may find it necessary to augment the authorized share capital. This authorized share capital represents the total value of shares the company is permitted to issue, while the paid-up capital refers to the total value of shares that have already been issued by the company.
It's important to note that the paid-up capital cannot exceed the authorized capital. Therefore, if a company has authorized capital of Rs.10 lakh and paid-up capital of Rs.10 lakh, and it wishes to bring in new shareholders, it can do so by either
Typically, after the issuance of new shares, the authorized capital increases. For assistance in increasing the authorized share capital, you can reach out to our advisors at info@wealth4india.com
According to Section 61 of the Companies Act, 2013, a limited company with a share capital may modify the capital clause of its Memorandum of Association through the passage of an ordinary resolution in a general meeting. However, this alteration can only occur if the company's Articles of Association provide the authority for such changes. Subsequently, a notice of alteration must be submitted to the Registrar of Companies (ROC) within 30 days using Form No. SH-7.
For a company to increase its Authorized Share Capital, it must first be permitted by its Articles of Association. Following this authorization, approval from members must be obtained by passing an ordinary resolution in an Extraordinary General Meeting of the company, as stipulated in Section 61(1). The authorized share capital of the Company is typically specified in Clause V of the Memorandum of Association (MOA).
Prior to commencing 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 related to the augmentation of authorized share capital. In the event that such a provision is absent, the company must proceed to amend the AOA accordingly.
Note: The majority of Articles of Association typically include a provision for increasing the authorized share capital of the company.
To initiate the process of increasing the authorized share capital, it is imperative to convene a Board meeting after providing notice to the Directors. During this Board meeting, obtaining approval from the Board of Directors for the proposed increase in authorized share capital is essential.
Following this procedure, a date must be scheduled for an Extraordinary General Meeting (EGM) to seek approval from the shareholders for the increase in authorized share capital and to effect changes to the Memorandum of Association (MOA) of the Company.
Subsequently, upon obtaining approval from the Board of Directors, the company secretary, who is present at the meeting, should present the notice of the Extraordinary General Meeting to the shareholders. Upon approval, the notice of the extraordinary general meeting should be distributed to all shareholders, directors, and auditors of the company.
Conduct the extraordinary general meeting at the specified time, date, and venue as mentioned in the notice. During this meeting, seek approval from the shareholders to increase the authorized share capital.
The approval from the shareholders for the increase in authorized capital must be obtained through the adoption of an ordinary resolution.
Following the passage of the ordinary resolution at the Extraordinary General Meeting, the company must file Form SH7 within 30 days. This filing should include payment of the prescribed government fee for the authorized capital, along with the following documents:
Adherence to the procedures outlined in the Companies Act and the Companies Rules for increasing the authorized capital is crucial. Upon successful completion of the process, the registrar will approve the filing, thereby effecting the increase in the authorized share capital of the company. The updated authorized share capital will be reflected on the MCA portal.
Upon the increase of the authorized share capital, the company can augment its paid-up share capital by issuing new equity shares.
The documents should be submitted to the Ministry of Corporate Affairs (MCA) within 30 days following the shareholders' consent for the increase in share capital. For private firms, the standard resolution is typically Form SH-7; Form MGT-14 is not necessary.
Ensure that all documents are accurately prepared and filed within the specified timeframe to comply with regulatory requirements.
Within a month of passing the resolution, the company is obligated to submit eForm SH-7 and eForm MGT – 14 (if applicable), accompanied by the requisite fees, to the Registrar.
Attachments required for submission include:
Attachments required for submission comprise: