Know Your Compliance for Increase Authorized Share Capital
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Basic Facts on Increase Authorised Share Capital
- Section 2(8) of the Companies Act of 2013 defines "Authorised Capital" as the maximum share capital specified in the company's memorandum. The company can expand to the permitted capital.
- The Private Limited Company Memorandum of Association specifies authorised and paid-up capital. As a result, the company can issue new shares up to the amount authorised by the MOA. If the company wishes to issue more shares than are permitted, the MOA must be amended.
- Authorised share capital is the total value of a company's shares. The paid-up capital is the value of issued company shares.
- Paid-in capital is less than authorised capital. Thus, a company with ₹10 lakhs in authorised and paid-up capital can accept new shareholders by:
- Increased authorised share capital and the issuance of new shares
- Switching shareholders.
How To Increase The Authorized Share Capital Of The Company?
Verify the AOA of the Company
Before increasing the authorised share capital, the AOA must be checked to ensure it includes a provision. If no such provision exists, the company must first change its AOA.
Note: Most of the AOAs have the provision for increasing the company’s authorised share capital.
Convene a Board Meeting
Directors must call a Board meeting to increase the company’s authorised share capital. Increasing the authorised share capital requires the Board of Directors’ approval at the Board meeting.
After this, an Extraordinary General Meeting should be scheduled to get shareholder approval to increase the authorised share capital and change the Company’s MOA.
Finally, get approval from the Board of Directors for the company secretary to present the notice of Extraordinary general meeting with shareholders. After approval, shareholders, directors, and auditors should receive notice of an extraordinary general meeting.
Extraordinary General Meeting
Conduct the extraordinary general meeting and get shareholder approval to increase the authorised share capital at the time, date, and place listed on the notice.
The approval of the shareholders to increase the authorised capital must be in the form of an ordinary resolution.
File ROC Forms
After the Extraordinary general meeting passes the ordinary resolution, the company must file Form SH7 within 30 days. Attach the following documents and pay the government fee for authorised capital.
Notice related to the Extraordinary General Meeting.
Authorised True copy of the ordinary resolution.
The changed Memorandum of Association (Which depicts the higher authorised capital)
If the Companies Act and Companies Rules are followed, the registrar will approve the filing to increase the company’s authorised capital. MCA will show new authorised share capital.
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