Every Public or Private company 'limited by shares' must have a share capital. Share capital refers to the amount invested in the company to carry out its day to day operations or business activities. The company's share capital can be altered or increased, subject to certain conditions as prescribed in law. A company cannot issue share capital over the limit specified in the capital clause without changing the capital clause of the memorandum of association.
Here are the few guidelines one must know about authorized share capital:
Firm may only raise money from the public up to its authorised share capital. You must raise your company's authorized share capital in order to raise money from the public.
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.
With the increase in share capital, the company’s overall net worth also increases. This further enhances the borrowing capacity of the company.
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:
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. In the absence of an express provision in the article, no alteration of the capital can be done. Therefore, before commencing upon the passing of a resolution to change the share capital of the company, it has to be ensured that there is an express provision in the articles authorising the company to alter its share capital.
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.
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. Authorized share capital means the total value of shares a company can issue, while paid-up capital is the total value of shares the company has issued. Paid-up capital can never exceed authorized capital. Hence, if a company having an authorised capital of Rs.10 lakhs and paid-up capital of Rs.10 lakhs would like to induct new shareholders, it can do so either by:
Before commencing the procedures for increasing authorized share capital, verify the AOA to ensure there is enabling provision in the Articles of Association (AOA) particularly with reference to increase authorized share capital. If there are no provisions for increasing authorized share capital, the company must first make changes to the AOA of the company.
Note: Most of the AOA’s will have enabling provisions for increasing authorized share capital
First, to increase the authorized share capital, convene a Board Meeting by providing notice to the Director. At the Board Meeting, obtain approval from the Board of Directors for increasing authorized share capital. Then fix a date, time, and place for conducting an Extra-Ordinary General meeting to obtain approval of shareholders to increase authorized share capital and make changes to the MOA of the company.
First, obtain the approval of the Directors of Company present at the meeting to present the notice of Extra-Ordinary General Meeting to the shareholders. Then, based on the approval, present the Notice of Extra-Ordinary General Meeting to all shareholders, Directors and Auditor of the Company.
On time, date and place mentioned on the Notice of 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.
Once the ordinary resolution is passed at the Member General Meeting, then eform SH-7 must be filed by the company within 30 days of passing of the ordinary resolution. Along with Form SH-7, prescribed government fee for authorized capital must be paid, and the following documents must be attached:
If the procedures for increasing authorised capital are followed as mentioned in the Companies Act and Companies Rules, then the Registrar would approve the filing and increase the authorised share capital of the company. The new authorised share capital of the company would be reflected on the MCA portal.
The documents must be filed with the MCA within 30 days after obtaining consent from the shareholders for the share capital increase. The standard resolution for private firms is merely SH-7, and MGT-14 is not required.
After increasing authorised share capital, the company's paid-up share capital can be increased by issuing new equity shares.
Procedure For Conversion Of Fully Paid Shares Into Stock Of Private Limited Company
The company has to make sure that its articles of association contain a provision authorising it to convert its fully paid shares into stock. More
Hold a meeting of board of directors and pass resolution in respect of the conversion of fully paid shares of the company into stock More
Issue notice of the general meeting along with the explanatory statement, to all members, directors and auditors of the company.
Convene and Hold the general meeting and pass special resolution for conversion of fully paid shares of the company into stock.
File with the Registrar within thirty days of passing of the resolution, FORM MGT-14 and FORM SH-7 along with the required More
Make necessary alterations in all the copies of the memorandum of association of the company lying in the office of the company.
A company may alter its existing paid-up share capital by consolidating or dividing all of its shares into shares of larger denominations than its existing shares. To consolidates means to bring together (separate parts) into a single or unified whole.
Procedure For Conversion Of Fully Paid Shares Into Stock Of Private Limited Company
The company has to make sure that its articles of association contain a provision authorising it to convert its fully paid shares into stock. More
Hold a meeting of board of directors and pass resolution in respect of the conversion of fully paid shares of the company into stock More
Issue notice of the general meeting along with the explanatory statement, to all members, directors and auditors of the company
Convene and Hold the general meeting and pass special resolution for conversion of fully paid shares of the company into stock
File with the Registrar within thirty days of passing of the resolution, FORM MGT-14 and FORM SH-7 along with the required More
Make necessary alterations in all the copies of the memorandum of association of the company lying in the office of the company
A company may alter its existing paid-up share capital by consolidating or dividing all of its shares into shares of larger denominations than its existing shares. To consolidates means to bring together (separate parts) into a single or unified whole.
Procedure For Conversion Of Fully Paid Shares Into Stock Of Private Limited Company
The company should ensure that Articles of Association contain a clause, authorizing it to consolidate its shares. More
Hold a meeting of board of directors and pass resolution approving the proposed consolidation of the shares of the company More
Issue notice of the general meeting along with the explanatory statement, to all members, directors and auditors of the company.
Convene and Hold the general meeting and pass special resolution for consolidation of the shares of the company
File with the Registrar within thirty days of passing of the resolution, FORM MGT 14 and FORM SH-7 with the required documents More
Make necessary changes in all the copies of the memorandum of association of the company lying in the office of the company.
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. When a number of shares are converted into a single holding with a nominal value equal to that of the total value of the shares, it is called conversion of shares into stock. Stock is the aggregate of the fully paid-up shares legally consolidated and portions of which aggregate may be transferred or split up into fractions of any amount without regard to the original nominal value of shares.
The company has to make sure that its articles of association contain a provision authorising it to convert its fully paid shares into stock. More
Hold a meeting of board of directors and pass resolution in respect of the conversion of fully paid shares of the company into stock More
Issue notice of the general meeting along with the explanatory statement, to all members, directors and auditors of the company
Convene and Hold the general meeting and pass special resolution for conversion of fully paid shares of the company into stock
File with the Registrar within thirty days of passing of the resolution, FORM MGT-14 and FORM SH-7 along with the required More
Make necessary alterations in all the copies of the memorandum of association of the company lying in the office of the company