Increase Authorised Share Capital

Authorised Share Capital - Overview

An Authorised share capital determines the maximum number of shares a private business can issue. According to the 2013 New Companies Act, there is no minimum capital increase requirement. The capital clause of the Memorandum of Association is updated by the board approving an ordinary resolution in order to issue additional shares or increase the authorized share capital.

This sum of increase in share capital varies from business to business and could alter, but only with the consent of shareholders. Let's say a firm has an authorised capital of ₹2 lakhs; in that case, it follows that it can issue shares for up to ₹2 lakhs. However, because it is flexible, this allowed capital may be increased or decreased as needed. Let's imagine a firm has ₹1 lakh in allowed capital, but an investor wishes to put in ₹1 crore. In this case, the company can raise its authorised capital to ₹1 crore. The permitted share capital increase for company registration is covered here.

Guidelines for Increase in Authorised Share Capital

Here are the few guidelines one must know about increase authorised capital:

• ₹5 lakhs for including the phrases Hindustan, Bharat, and India in the company name.
• ₹10 lakhs for the use of the phrases 'Enterprise', 'Products', 'Business', and 'Manufacturing' in the company name.
• ₹10 lakhs for the use of the phrases 'Enterprise', 'Products', 'Business', and 'Manufacturing' in the company name. ₹50 lakhs for the use of the phrases global, intercontinental, continental, Asian, and international in the company's name.
• Bharat, Hindustan, and India were paid ₹50 lakhs to be the first word in the firm name.
• For employing words like 'international', 'global', 'universal', 'continental', 'intercontinental', 'asiatic', and 'industry' anywhere in the firm name, as well as 'udhyog' and 'industry', the fine is ₹1 crore.
• ₹ 5 Crore if the company name contains the word 'Corporation' even once.

Importance of Increasing Authorised Share Capital

A firm may only raise money from the public up to its share capital increase. You must raise your company's increase authorised capital in order to raise money from the public.

Benefits of Increasing Authorised Capital

Increase Authorised Capital

A company can raise whatever authorised capital as they decide upon and the same will be mentioned in the MoA with revisions. Hence, increasing authorised 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.

It could invite investments as the same can be easily accommodated if there is enough authorised capital.

Documents Required for Increase in Authorised Share Capital

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.

• Digital signature certificate Online: A copy of a DSC from any authorised director of the company
• Memorandum of Association: A copy of the modified or latest version of the MoA
• Articles of Association: A copy of the modified or latest version of the AoA
• Certificate of incorporation: A copy of the company’s incorporation certificate
• PAN card: A copy of the company’s PAN card.

Checklist For Increasing Authorised Share Capital

• Check the provisions of the AOA to increase authorised share capital
• If the AoA does not permit an increase, then the AoA must be modified as per Section 14 of the Companies Act of 2013
• Issue a notice for calling a board meeting to modify the AoA in order to approve the increase in authorised share capital
• Issue a notice for calling an extraordinary general meeting to modify the AOA in order to approve the increase in share capital
• Issue the notice at least 7 days before the board meeting and 21 days before the EGM.

Types of Capital in a Company

There are four main types of capital in a company:

• Equity capital: This is the money that is invested in the company by the shareholders. It is the most important type of capital for a company, as it provides the company with the funds it needs to operate and grow

• Debt capital: This is the money that the company borrows from lenders, such as banks. Debt capital is usually repaid with interest over a period of time.

• Working capital: This is the money that is used to finance the day-to-day operations of the company, such as paying for wages, rent, and supplies. A combination of equity capital and debt capital usually funds working capital.

• Trading capital: This is the money that is used to buy and sell goods or services. Trading capital is usually funded by debt capital.

The amount of each type of capital that a company needs will vary depending on the size and stage of the company. For example, a startup company will typically need more equity capital than a mature company.

The following are some of the key differences between the four types of capital:

• Equity capital: Equity capital is a permanent source of financing for a company. It does not have to be repaid, and the shareholders do not have to pay interest on it. However, the shareholders are the last to get their money back if the company goes bankrupt.

• Debt capital: Debt capital is a temporary source of financing for a company. It has to be repaid, and the lenders charge interest on it. However, the lenders have a lower priority than the shareholders if the company goes bankrupt.

• Working capital: Working capital is a revolving source of financing for a company. It is used to finance the day-to-day operations of the company, and it is constantly being replenished.

• Trading capital: Trading capital is a revolving source of financing for a company. It is used to buy and sell goods or services, and it is constantly being replenished.

A company's capital structure is the mix of equity capital, debt capital, working capital, and trading capital that the company uses to finance its operations. The capital structure of a company will vary depending on the company's financial situation, its risk appetite, and its strategic goals.

How to Increase Authorised Shares?

In the case of a private limited company, the procedure for increasing the authorised share capital is According to Section 61 of the Companies Act of 2013, a limited company with a share capital may change the capital clause in its Memorandum of Association (MoA) by making an ordinary resolution in a general meeting, provided that its Articles of Association (AoA) grant the firm permission to do so. Within 30 days, a notice of alteration must be submitted in Form No. SH-7 to the ROC. Only when specifically permitted by its articles of association and following member approval by a regular resolution passed at an extraordinary general meeting of the business is a corporation permitted to expand its authorised share capital.

Check the Articles of Association: The first step in increasing authorised share capital of a company is to check the AOA. It will outline the process for increasing the authorised share capital, including any limitations or restrictions that may apply.

Convene a Board Meeting: The proposal to raise the increase authorised share must be discussed and approved by the company's board of directors, who must call a meeting. To raise the authorised share capital, the board must adopt a resolution outlining the increase's dollar value.

Call for an Extraordinary General Meeting (EGM): Once the board has approved the increase in authorised share capital, the company must call for an Extraordinary General Meeting (EGM) of the shareholders. All shareholders must receive notice of the EGM at least 21 days prior to the meeting.

Pass a Special Resolution: At the EGM, the shareholders must pass a special resolution to approve the increase in authorised share capital. A special resolution needs the support of at least 75% of shareholders in order to pass.

File the Resolution with the Registrar of Companies: After the special resolution has been passed, the company must file the resolution with the registrar of companies within 30 days. A certificate of registration of the resolution will thereafter be issued by the registrar of companies.

Issue New Shares: Once the share capital increased, the company can issue new shares to its shareholders. The company must follow the process outlined in the articles of association for issuing new shares, including any restrictions or limitations that may apply.

Post Compliance Steps To Increase Authorised Share Capital

Below are the steps on procedure for increase in authorised share capital

Step 1: Board Resolution

Prior to deciding whether or not to increase the authorised share capital, the company must first hold a board meeting to review and discuss the authority provided under the company's articles of association (AOA). If not, amend the AOA and hold a general meeting to discuss raising the authorised capital.

Step 2: Ordinary Resolution for an Increase in Authorised Capital

The Company will hold a general meeting of the members and adopt a regular resolution for an increase in the company's authorised capital and any necessary amendments to the memorandum of association at said meeting.

Step 3: Submitting the Required Paperwork

Following the passage of the Ordinary Resolution increasing the business's authorised capital, the company will file Forms MGT-14 for filing resolutions and Form

Step 4: The ROC approval

The Registrar of Companies will process the forms and approve the increase in authorised capital after receiving the Forms of Increase in Authorised Share Capital of the Company and verifying that it is pleased with the forms filed and compliance made. The company's master data will be updated on the MCA portal as soon as the form has been approved.

How to Increase the Authorised Share Capital of the Company? - Procedure

• Verify whether the company's AOA has given the go-ahead to increase the authorised capital. If AOA is not permitted, a Special Resolution must be passed in order to change AOA
• Hold a board meeting to establish the day, date, time, and location of the extraordinary general meeting as well as to enhance the company's authorised capital. Give notice of the meeting's day, date, time, location, and agenda to each member/shareholder, director, and auditor of the company
• Convene, hold, and conduct the EGM at the time and location stated, and adopt a resolution to seek shareholder approval. If applicable, submit the required form within the timeframe
• Change the company's Memorandum of Association to increase the permitted share capital
• If the shareholders' resolution is approved, you have 30 days to file form SH-7 with the Registrar of Companies. Additionally, if the resolution is passed as a Special Resolution, form MGT-14 must be filed within 30 days after the resolution's passage.

Reasons for Increase in Authorised Share Capital

What can be the reasons for increase in authorised share capital of the company? There could be various reasons for a company needing to increase the authorised capital. Let us see a few:

• The need for enormous funds
• Financing the company's new projects
• Merger of two enterprises and their cash infusion as part of an arrangement strategy
• Additional share capital issuance
• Debt is converted to equity capital.
• To fulfil the legal requirements

Does Increase in Authorised Share Capital Require Ordinary or Special Resolution?

As per the Companies Act, 2013, an increase in authorised share capital requires a special resolution passed by the shareholders of the company. A special resolution is a resolution that is passed by at least 3/4th majority of the shareholders present and voting at a general meeting of the company.

However, the AOA of the company may prescribe a higher majority or additional requirements for passing a special resolution. Hence, it is important to review the company's AOA before passing a resolution to increase authorised share capital.

What Are the Rules for Increase in Authorised Share Capital?

The rules for increasing authorised share capital of a company are as follows:

Check the Articles of Association (AOA): Before increasing authorised share capital, the company should review its AOA to ensure that the procedure and requirements for passing a special resolution are met

Conduct a Board Meeting: The board of directors of the company should convene a meeting to approve the proposal to increase authorised share capital

Pass a Special Resolution: The shareholders of the company should pass a special resolution approving the increase in authorised share capital. The resolution should be filed with the Registrar of Companies (ROC) within 30 days of its passing

Obtain Approval from ROC: The company should file the necessary documents with the ROC, including the special resolution and a copy of the altered AOA to obtain approval for the increase in authorised share capital

Issue New Shares: Once the increase in authorised share capital is approved, the company can issue new shares to raise additional funds.

How Is Authorised Share Capital Determined?

The maximum number of shares that a corporation is permitted to issue to its shareholders is known as the authorised share capital. The MOA contains a reference to the authorised share capital, which is decided upon when the company is incorporated.

The authorised share capital can be determined based on various factors such as the company's future growth plans, capital requirements, and financial projections. The company's promoters and directors decide the authorised share capital based on their estimation of the company's future capital needs.

Subsequently the authorised share capital may be raised by passing a special resolution and submitting the required paperwork to the ROC. The corporation can now issue more shares to its shareholders in order to raise more money thanks to the increase in authorised share capital.

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