The people who signed the memorandum are the initial shareholders of the firm. When a business is formed, its founding members set the first amount of its authorised capital.
The terms Authorised Capital and Paid-up Capital will be introduced throughout the process of incorporating a business. In this article, we will define such business-related words and briefly explain their relevance. The MoA subscribers have injected long-term investment into the organisation via its initial funding.
The authorized capital refers to the maximum amount of share capital that a company is permitted to issue to its shareholders. For further details, please refer to the article.
These investments are not redeemable for cash and do not provide a set return, but they give the holder a claim on the company’s earnings. The company’s Memorandum of Association (MoA) specifies the amount of authorised capital. This limits the amount of stock money the corporation may raise. The government registration cost for a corporation is similarly tied to the size of its permitted capital.
By signing the last sheet of the MoA, the promoters have ‘subscribed’ to the firm’s equity capital. Hence, the shareholders’ commitment to contribute to the company’s capital. Subscribed capital may be less than authorised capital. Once the corporation received the shareholder’s subscription payment, the capital became paid in full. Under the Corporations Act of 2013, a newly formed company cannot begin operations until the whole MoA subscription fee has been received. In this blog we will know about how to increase Authorised Capital of a company.
Difference Between Authorised and Issued Capital
When forming a Private Limited Company, the company’s promoters must choose the company’s approved capital and the value of the shares they will get as compensation for their investment. The highest value of shares that may be issued to a company’s shareholders is known as its ‘authorised capital’, which is set by the company’s charter.
The number of issued shares, also called outstanding shares, is the total number of shares currently held by the company’s shareholders. A company’s permitted capital must always be more than its issued and existing share capital.
Budgeted Funding for New Ventures
Most modern startups are self-funded. Thus, they lack the resources to pay the Ministry for Corporate Affairs a hefty cost to incorporate a corporation with an appropriate amount of authorised capital.
Since ₹1 lakh is the threshold below which a business cannot be incorporated, most promoters only offer shares with a value of ₹1 lakh and less to first investors. To limit the need to expand the authorised capital of the firm throughout the beginning and growth phases, the balance of the capital provided by the founding members is classed as an unsecured loan, share application money, or share premium.
When a private limited company begins expanding its activities and needs extra funding, in either debt or equity, the firm’s permitted capital is increased, and new shares are released to the original shareholders. Therefore, most businesses may get by with the minimal approved capital of ₹1 lakh & subsequently expand the approved capital of a private limited company if the need for loan or equity finance emerges.
Methods for Increasing a Corporation’s Share Capital
Investment into a new company is necessary for every firm to get off the ground and operate. The share capital is the total amount of money the business’s shareholders contributed. It is the primary limit on how much a company may raise via the sale of its stock.
The difference between authorised and paid-up shareholding is key. Paid-up stock price estimates all the shares that have been issued by a corporation, whereas paid-up capital is the maximum number of shares that a company is legally allowed to issue. A company’s paid-up and authorised share capital is subject to rising after incorporation. Still, the paid-up stock price can never be more than the permitted share capital.
Section 61 of the Company Law, 2013, in conjunction with Sections 13 and 64, governs the procedure for changing a company’s share capital. Initial steps in increasing a company’s share capital include convening an extraordinary board meeting in the presence of at least a majority of the board members and the shareholders.
They will then vote on and ratify a resolution increasing the company’s authorised share capital. In addition, according to Section 61 of Company Law, 2013, a business must have a mechanism for increasing its share capital in its Articles of Agreement (AoA).
Suppose the company’s Articles of Association do not already include a provision for increasing its share capital. In that case, an extraordinary general meeting must be held, and a resolution must be approved at that meeting to increase authorised share capital.
Upon obtaining the members approval, our staff will gather copies of the meeting notice and the resolution approved at the meeting and submit the appropriate E-Forms with the RoC to enhance the company’s share capital. After a careful review of the E-form, the relevant RoC will provide approval.
Now that we are familiar with the broad steps used to grow a company’s share capital, we can dive further into the specifics of increasing paid-up and authorised share capital.
Tips For Increasing A Company’s Authorised Share Capital
Changing the company’s share capital must be addressed in the Articles of Association, as discussed before. If the company’s Articles of Association (AoA) do not include a clause relating to sharing capital expansion, the AoA will need to be revised to include such a section.
To increase authorised share capital by the company’s Articles of Association, the Board of Directors must hold a meeting by Section 173(3) of Company Law, 2013. The purpose of this meeting is to ask the Board of Directors for permission to increase authorised share capital.
In pursuance of Section 102 (1) of Company Law, 2013, you are requested to vote in favour of the EGM notification and the accompanying explanatory statement.
Conclusion
Anything commercial in India requires a valid license. You have just opened a factory! Both a GST Registration and a Trade License are required in most countries. An FSSAI certificate is required to operate in the food industry. There is a need for both Professional Tax and Shops & Foundations Act registration. Moreover, you must submit GST Returns in addition to Professional Tax Returns. For any further assistance, you can get in touch with the experts at Vakilsearch.
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