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Increase In Authorised Capital Process Flow
To run business every business needs more funds over time. These funds are basically required on a long and short term basis. By taking loans and advances a short-term need can be satisfied. But, as per the long term is concerned, the company will require more funds. For a Private limited Company, this can be done by increasing the amount of authorized capital of the company. Since, all the private limited company are regulated and governed under the Company Act to make changes in the structure it is mandatory to follow the Act and the stated rules.
As per the registration of the private limited company is concerned the authorized and paid-up capital is specified in the MOA of the company. The company thus issue new shares within the limit of the capital that is authorized which is mentioned in the MOA. If the company wishes to issues more shares than the limit that is specified then amendments needs to be done in the MOA.
DEFINE AUTHORISED CAPITAL
“Authorized Capital” is the capital that is authorized by the company’s memorandum to be the maximum amount of the share capital of the company, as per the Section 2 (8) of the Companies Act, 2013.
The company can expand its business to the level of authorized capital. If the company wants to expand its business using more funds than at first, the company has to increase the authorized capital by some steps which has been clearly explained in this article
INCREASED AUTHORIZED SHARE CAPITAL
Before issuing new equity shares and increasing the paid-up capital, a company may need to increase the authorized share capital. The total value of the shares a company can issue is known as authorized share capital. The paid-up capital is known as the issued total value of the company.
As per the paid-up capital is concerned it does not exceed the authorized capital. Hence, if the company has authorized capital of Rs. 10 lakh and paid-up capital of Rs. 10 lakh would like to induct new shareholders then it can be done by:
- Issuing new shares and increasing the authorized share capital.
- Transfer of shares from the existing shareholder to the new shareholders.
HOW CAN A COMPANY INCREASE THE AUTHORIZED SHARE CAPITAL?
AOA Verification of the Company
It is mandatory 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 before starting with the procedures for increasing the authorized share capital. If there is no such provision, then the company must first make changes to the company’s AOA.
Note : Most of the AOA’s have the provision for increasing the authorized share capital of the company
Convene a board meeting
It is mandatory to convene a Board meeting by giving notice to Director to increase the authorized share capital of the company. For increasing the authorized share capital, at the board meeting, it is necessary to obtain the approval from the Board of Directors.
After this procedure, for the approval of the shareholders for increasing the authorized share capital and make changes to the MOA of the Company, a date should be fixed to conduct an extra-ordinary General meeting. Basing the approval, the notice of extraordinary general meeting should be presented to all the shareholders, directors, and auditors 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 the general meeting to the shareholders.
Extra-Ordinary General Meeting
Conduction of the extraordinary general meeting which to leads to the approval of the shareholders to increase the authorized shared capital on time, date and place that is mentioned on the notice.
The approval gained from the shareholders to increase the authorized capital must be in the form of an ordinary resolution.
Filing of ROC Forms
At the extraordinary general meeting after the pass of an ordinary resolution a Form SH7 should be filed by the company within 30 days of passing the ordinary resolution. The prescribed government fee for the authorized capital must be paid and the documents that must be attached are mentioned below.
- Authorized True Copy of the ordinary resolution.
- Notice regarding the Extraordinary General Meeting.
- Changed Memorandum of Association (depicting the higher authorized capital)
If the mentioned procedure in the Companies Act and the Companies Rules are followed to increase the authorized capital of the company then the approval of the filing and increase in the authorized share capital of the company is approved by the registrar. On MCA portal the new authorized share capital will be reflected.
Once the authorized share capital is increased the paid-up share capital of the company can be increased by issuing the fresh equity shares.
Documents required for General Changes in Share Capital
Those Are As Follows:-
- Announcement of EGM with the descriptive statement;
- Duplicate of the resolution delivered at the general meeting of the associates.
- Modified Memorandum of Association.
- Modified Articles of Association
- A valid certified copy of Board resolution for alteration in AOA
- A valid certified copy of Board resolution for alteration in MOA
- A valid certified copy of Shareholders resolution
- Duplicates of audited balance sheets for the past three years.
- Resolution for permitting such consolidation or division and providing explanation for the equivalent.
- Credentials in proof of new capital arrangement and class of shares presented consolidated or divided
- Affidavit authenticating the petition.
- Bank draft substantiating payment of request fee.
- The implemented Vakala Nama or Memorandum of appearance with a copy of the Board's Resolution, whatever is available as per requirement
- Two additional duplicates of the application
- Any other applicable documents
What is the procedure accompanied for Change in Share Capital?
The Procedure Followed For The Change In Share Capital In Brief Is Follows:
- Issue a Board notice with the agenda of the meeting at least seven days before the meeting date.
- Hold a Board Meeting
- Pass the Resolution for the Change in Share Capital in the Board meeting.
- The Resolution passed is subject to the consent of the Shareholders Meeting.
- For holding a Shareholders Meeting, fix the date, time, and venue for the meeting.
- Director is allowed to send notice of the Shareholders meeting to the Shareholders of the Company.
- The announcement for a Shareholders meeting should be published at least before 21 days of the meeting
- Hold a Shareholders meeting
- Pass the Resolution with the permission of the majority shareholders.
Following the passing of the Resolution, Registrar of the Companies (RoC) should get notified about the Change in Share Capital within 30 days of the passing of Resolution. If the Registrar is not implicated about the Alteration within 30 days, then the company or its officers will be responsible for paying a fine of up to 10,000 Rupees for each day of suspension and can be extended to 5 lakh Rupees.
The above forms should get filed with the designated fees by the Ministry of Corporate Affairs. If the Forms discussed above are not registered with the (ROC) Registrar of Companies, in those case (Section 117 of the Companies Act, 2013) the company must be liable for a fine which shall not fall below five lakh rupees and may reach up to 25 lakhs of rupees. Every officer who is in default will be liable to pay 1 lakh rupee and which can be increased to 5 lakhs of Rupees.
FREQUENTLY ASKED QUESTIONS(FAQ's)
- Verifying the AOA
- Convene Board meeting extraordinary general meeting
- File ROC forms
- Allotment of shares.