Increase Authorized Capital

Benefits of Increasing Authorized Capital

Increase Authorized Capital

A company can raise whatever authorized capital as they decide upon and the same will be mentioned in the MoA with revisions. Hence, increasing authorized capital has an incremental effect on the overall company share capital.

Enhances Borrowing Capacity

With the increase in share capital, the company’s overall net worth also increases. This further enhances the borrowing capacity of the company.

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Detailed Analysis of Law as per Companies Act

A limited company having a shares capital can alter the capital clause of the memorandum of association in its member meeting, and such alteration may include the following:

Increase its authorized share capital by such amount as it thinks fit so;

All or any of its share capital can be consolidated and divided into shares of a larger amount than its existing shares;

All or some of its fully paid-up shares can be converted into stock, and again reconvert that stock into fully paid-up shares capital of any denomination;

Sub-divide the shares into shares of smaller amount than is fixed by the memorandum;

Cancel the shares on the date of passing of the resolution, which has not been or agreed to be taken by any individual and diminish the amount of its share capital by the amount of the shares so cancelled.

The Companies Act, 2013, provides the power to alter the share capital of the company. Any modes of alteration of share capital must be authorised by the article of the company.

Any resolution passed at the general meeting approving the alteration of the share capital of the company must be filed with the Registrar of Companies within 30 days from the date of passing such resolution.

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Authorized Share Capital Increase

There must be an increase in the company's authorized share capital before issuing further new equity shares and increasing its paid-up share capital.

Paid-up capital can never exceed authorized capital.

Increasing an authorised share capital by issuing new shares.

Transfer the shares from existing shareholders to the new shareholders of a company.

In most cases, authorized capital is increased by issuing new shares.

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Verify AOA of the Company

Before commencing the procedures for increasing authorized share capital, verify the AOA to ensure there is enabling provision in the Articles of Association (AOA).

Note: Most of the AOA’s will have enabling provisions for increasing authorized share capital.

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Convene Board Meeting

First, to increase the authorized share capital, convene a Board Meeting by providing notice to the Director.

Obtain approval from Board of Directors.

Fix date, time and place for EGM.

Present notice of EGM to shareholders, directors and auditor.

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Extra-Ordinary General Meeting

Conduct the Extra-Ordinary General Meeting and obtain shareholders approval for increase of authorised capital.

The approval of shareholders for increasing authorised share capital must be in the form of an ordinary resolution.

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File ROC Forms

Once the ordinary resolution is passed at the Member General Meeting, then eform SH-7 must be filed within 30 days.

Documents to be Attached

Notice related to EGM.

Authorized True copy of Ordinary Resolution.

Changed Memorandum of Association.

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Documents Required for Increase in Authorised Share Capital

Digital Signature Certificate (DSC)

Memorandum of Association (MoA)

Articles of Association (AoA)

Certificate of Incorporation

PAN Card of Company

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Allotment of Shares

After increasing authorised share capital, the company's paid-up share capital can be increased by issuing new equity shares.

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Increase in Share Capital

Procedure For Conversion Of Fully Paid Shares Into Stock

ENABLING CLAUSE – Ensure AOA authorises conversion of fully paid shares into stock.

BOARD MEETING – Hold board meeting and pass resolution.

NOTICE – Issue notice of general meeting.

GENERAL MEETING – Pass special resolution.

FILING – File MGT-14 and SH-7.

INCORPORATE CHANGER – Make changes in MOA copies.

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Consolidation of Share Capital

A company may alter its existing paid-up share capital by consolidating or dividing all of its shares into shares of larger denominations.

Procedure

ENABLING CLAUSE – Ensure AOA authorises consolidation.

BOARD MEETING – Pass resolution approving consolidation.

NOTICE – Send notice to members, directors and auditors.

GENERAL MEETING – Pass special resolution.

FILING – File MGT-14 and SH-7 with ROC.

INCORPORATE CHANGER – Update MOA copies.

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Conversion of Shares into Stock

A company limited by shares may alter its capital clause of memorandum for converting any of its fully paid-up shares into stock or vice-versa.

Stock is the aggregate of fully paid-up shares legally consolidated and portions of which may be transferred in fractions.

Procedure

ENABLING CLAUSE – Ensure AOA authorises conversion.

BOARD MEETING – Hold board meeting and pass resolution.

NOTICE – Send notice of general meeting.

GENERAL MEETING – Pass special resolution.

FILING – File MGT-14 and SH-7.

INCORPORATE CHANGER – Make alterations in MOA copies.