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Posted on April 24, 2021
Authorized share capital is the maximum number of shares or stock units that a company can issue as mentioned in its MoA or Memorandum of Association or its AoA or Articles of Association. Mostly, the authorized share capital of the company is not fully used by management in order to provide space for future issuance of additional stock if the company decides to increase its capital quickly. Another reason to keep the authorized share capital of the company is to retain a managing interest in the business.
Authorized Share Capital
When an entrepreneur plans to apply for company registration and settles on the business setup, it is essential for the owners and the co-owners to plan perfectly and decide on what would be their company’s share capital and how to Increase Authorized Share Capital in future.
Authorized share capital is the maximum shares a company can issue and paid-up capital is the total value of shares of the company which are issued. Paid-up capital of the company can never be exceeded then the authorized capital. Therefore, if a company having paid-up capital of Rs. 20 lakhs and authorized capital of Rs. 20 lakhs and would like to bring in new shareholders, then the company can do so either:
- By increasing the authorized share capital of the company and issuing new shares. (or)
- By transferring capital shares from existing shareholders of the company to the new shareholders.
In most of the cases, authorized capital is increased by issuing new shares. Here in this article, let us discuss on the official procedure for increase authorized capital
Procedure to Increase Authorized Share Capital
According to the subject of the constraints and clauses dictated in section 61 (read with section 13 and 14) of the Companies Act, 2013, the owner of the company can increase the authorized share capital of his/her company any time. And it can be in a formal process which is mentioned below
Verify the approval within the Articles of Association of the company
As per Section 61 of the Companies Act, 2013, expanding the Authorized share capital, approval in Articles of Association is needed. Therefore, verifying that the necessary provisions are mentioned within the Articles of Association is a precondition to increase the authorized share capital. If the Articles of Association of the company do not approve an increase, then it is mandatory to amend them to allow to Increase Authorized Share Capital before proceeding further, according to the provision of Section 14 of the Companies Act, 2013. The Article of Association should be amended or modified by a special resolution.
Conducting a Board meeting to notify the incidence of EGM
A General board meeting is called in which that an EGM is to be held to discuss about the amendment of AoA and vote on that particular matter of increasing the authorized share capital. After deciding on the date, place, and time of the EGM by the Board of directors of the company, a notice for the same is sent to each and every directors, members or shareholders, auditor of the company, as they are the people who have to vote upon the matter of increasing the authorized share capital of the company, as per Section 101 of the Companies Act 2013.
Additionally, the notice which is issued should hold the voting method so that it can be utilized for passing the special resolution to increase the authorized share capital of the company, and the descriptive statement as per Section 102 of the Companies Act 2013 is to be enclosed along with that.
Conducting an Extraordinary General Meeting
After sending the notice to each and every director, member or shareholder, auditor of the company, the impending of EGM has been sent out and the matter of increasing authorized share capital is discussed and then voted upon in the manner set forth in the notice for the incidence of the Extraordinary General Meeting. The Ordinary Resolution under section 61(1)(a) of the Companies Act, 2013, is then passed to increase the authorized share capital of the Company.
Getting approval from the Registrar of Companies
After passing the Ordinary Resolution, within a time period of 30 days, Form SH-7 must be applied to the concerned Registrar of Companies (RoC) with all the necessary attachments or documents as per the Section 64 and fees. Along with the amended MoA and AoA of the company, the following documents are required to be submitted with e-form SH-7
- Board Resolution of the company to increase the authorized share capital;
- Board resolution of the company for the modification in the capital clause of Memorandum of Association;
- Resolution of the shareholders that have been passed in the EGM.
The concerned Registrar of Companies will then check the submitted forms and attached documents thoroughly. If all necessary requirements are satisfied, the Registrar of Companies will approve the Increase Authorized Share Capital.