Increase Authorised Share Capital

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Increase in authorised share capital of company

When a firm is at the incorporation stage, one of the most crucial decisions that the promoters must make is how much cash to put in the company.

As the firm grows, the company may consider expanding its activities, whether in size, scale, or structure. To make that ambition a reality, additional cash may need to be pumped into the firm, thereby expanding the company's share capital. The quantity of capital required may occasionally exceed the authorized capital limit at the moment. The maximum amount of capital for which the Company can issue shares to shareholders is the approved capital.

The Authorised Capital level is established in the Memorandum of Association under the Capital Clause, as per Section 2(8) of the Companies Act, 2013. A corporation may take the appropriate measures to raise the approved capital limit in order to issue more shares, but it may never issue shares that exceed the authorised capital limit.

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Authorised Share Capital

A private company's authorized share capital determines the maximum number of shares it may issue. There is no minimum capital increase requirement under the New Companies Act of 2013. When the board approves an ordinary resolution to issue new shares or raise the authorized share capital, the capital clause of the Memorandum of Association is revised.

This amount of authorized share capital increase varies from company to company and may change with shareholder approval. Assume a company has an authorised capital of 2 lakhs; in such case, it can issue shares for up to 2 lakhs. This allowable capital, however, can be increased or lowered as needed due to its flexibility. Assume a company has one lakh in permissible capital, but an investor wants to put in one crore. In this situation, the company's authorized capital might be increased to 1 crore. This section discusses the authorized share capital increase for business registration.

Parameters for Authorized Share Capital Increase

Here are a few rules to remember when it comes to authorized share capital:

5 lakhs for including the terms Hindustan, Bharat, and India into the corporate name.
10 lakhs for using the words 'Enterprise,' 'Products,' 'Business,' and 'Manufacturing' in the firm name.
10 lakhs for using the words 'Enterprise,' 'Products,' 'Business,' and 'Manufacturing' in the firm name. 50 lakhs for using the terms "global," "intercontinental," "continental," "Asian," and "international" in the company's name.
Bharat, Hindustan, and India were each offered 50 lakhs to be the firm's first term.
The fine is one crore for using terms like 'international', 'global', 'universal', 'continental', 'intercontinental', 'asiatic', and 'industry' anywhere in the corporate name, as well as 'udhyog' and 'industrial'.
5 crore if the term 'Corporation' appears even once in the firm name.

Benefits of Increasing Authorised Capital

A company may only raise funds from the public up to the amount of its authorized share capital. To obtain funds from the general public, you must first increase your company's authorized share capital.
A firm can raise as much authorized capital as it wants, and this will be reflected in the MoA with amendments. As a result, raising authorized capital has a cumulative effect on total firm share capital.
The rise in share capital raises the company's total net value. This increases the company's borrowing capability even further.
It may attract investment since it may be readily accommodated if sufficient authorized capital is available.

Checklist For Increasing Authorised Share Capital

Check the AoA provisions for increasing authorized share capital
If the AoA does not allow for an increase, the AoA must be updated in accordance with Section 14 of the Companies Act of 2013.
Send out an invitation to a board meeting to amend the AoA and approve the increase in authorized share capital.
Declare an extraordinary general meeting to amend the AoA and approve the increase in authorized share capital.
Send out the notification at least seven days before the board meeting and at least 21 days before the EGM.

How to Increase the Company's Authorized Share Capital?

The method for raising the authorized share capital in the case of a private limited corporation is Section 61 of the Companies Act of 2013 states that a limited company with a share capital may amend the capital clause in its Memorandum of Association (MoA) by passing an ordinary resolution in a general meeting, provided that the firm's Articles of Association (AoA) permit it to do so. A notification of change must be submitted to the ROC in Form No. SH-7 within 30 days. A company may increase its authorized share capital only when explicitly approved by its articles of association and after member approval by a normal resolution voted at an extraordinary general meeting of the business.

Check the Articles of Association:

The first step in expanding a company's approved share capital is to review the AoA. It will describe the procedure for expanding the authorized share capital, as well as any limitations or restrictions that may apply.

Call a Board Meeting:

The proposal to increase the authorized share capital must be debated and approved by the company's board of directors, who must convene a meeting. To increase the authorized share capital, the board must pass a resolution stating the monetary amount of the increase.

Schedule an Extraordinary General Meeting (EGM):

Once the board has approved the increase in authorized share capital, the firm must convene an EGM of the shareholders. The EGM must be announced to all shareholders at least 21 days before the meeting.

Pass a Special Resolution:

At the EGM, shareholders must approve the increase in authorized share capital by passing a special resolution. A special resolution must be supported by 75% of shareholders in order to pass.

Steps To Increase Authorised Share Capital

Step 1: Board Resolution

Before choosing whether or not to increase the authorized share capital, the firm must first call a board meeting to consider and discuss the authority granted under its articles of association (AOA). If not, revise the AOA and call a public meeting to debate increasing the authorized capital.

Step 2: Ordinary Resolution for Authorised Capital Increase

At the general meeting, the firm will pass a routine resolution for an increase in the company's authorized capital as well as any required revisions to the memorandum of association.

Step 3: Submitting the Required Documentation

Following the passing of the Ordinary Resolution raising the company's authorized capital, the firm will file Forms MGT-14 for filing resolutions and Form MGT-15 for filing documents.

Step 4: Obtaining ROC clearance

After receiving the Forms of Increase in Authorised Share Capital of the Company and verifying that it is satisfied with the forms submitted and compliance made, the Registrar of Companies will process the forms and authorize the increase in authorised capital. As soon as the form is accepted, the company's master data will be updated on the MCA site.

Procedure to Increase the Authorised Capital

Check to see if the company's AOA has approved an increase in authorized capital. If AOA is not allowed, a Special Resolution must be enacted to modify AOA.
Hold a board meeting to determine the day, date, time, and venue of the extraordinary general meeting, as well as to increase the authorized capital of the firm. Notify each member/shareholder, director, and auditor of the meeting's day, date, time, place, and agenda.
Convene, hold, and conduct the EGM at the specified time and venue, and pass a resolution seeking shareholder approval. Submit the relevant form within the deadline if applicable.
To raise the allowed share capital, amend the company's Memorandum of Association.

Motives for an Increase in Authorized Share Capital

What may be the causes for the growth in the company's authorized share capital? A firm may need to expand its authorized capital for a variety of reasons. Here are a few examples:

The requirement for massive funds
Financing new initiatives for the firm
Merger of two businesses and capital infusion as part of an agreement plan
Additional share capital is being issued.
Debt is turned into equity capital.
To meet legal criteria

Documents Required for Increase in Authorized Share Capital

Online digital signature certificate: A copy of the company's DSC from any authorized director
Memorandum of Association: A copy of the most recent or amended version of the MoA
Articles of Association: A copy of the most recent or updated version of the AoA
Incorporation certificate: a copy of the incorporation certificate of the company
PAN card copy: A duplicate of the company's PAN card.

Rules for Authorized Share Capital Increases

Before expanding authorized share capital, the firm should evaluate its Articles of Association (AOA) to ensure that the method and conditions for adopting a special resolution are satisfied.
Conduct a Board Meeting: The company's board of directors should meet to approve the request to raise authorized share capital.
Pass a Special Resolution i.e the company's shareholders should approve the increase in authorized share capital by passing a special resolution. Within 30 days of its passage, the resolution must be lodged with the Registrar of Companies (ROC)
Get ROC Approval: In order to obtain approval for the increase in authorized share capital, the firm should file the relevant papers with the ROC, including the special resolution and a copy of the revised AOA.
Issue New Shares: Once the increase in authorized share capital has been approved, the firm can issue new shares to raise money.

FAQs on Increase in Authorized Share Capital Services

Question: How can a Pvt Ltd firm raise capital?
Answer: A Pvt Ltd firm can raise its share capital by passing a resolution at a board of directors meeting and gaining shareholder approval.

Question: How much capital is authorized for private limited companies?

Answer: A private limited company's authorized capital can vary and is determined by the company at the time of incorporation.

Question: Is it possible for a private firm to change its share capital?

Answer: Yes, a private corporation can change its share capital by passing a resolution in a board of directors meeting and getting shareholder approval.

Question: Can the number of authorized shares be increased?

Answer: Yes, authorized shares can be raised by passing a resolution at a board of directors meeting and receiving shareholder approval.

Question: Who determines the authorized capital amount?

Answer: The amount of authorized capital is determined by the firm at the time of incorporation and can be adjusted later by adopting a resolution in the board of directors meeting and receiving shareholder approval.

Question: How do you raise funds while maintaining control?

Answer: A corporation might choose debt financing, mezzanine financing, and revenue-based financing to raise funds without losing control.