This article is all about sharing the basic tips that you need to be careful about while increasing the equity shares of your business. Consider this as an all-around report on authorized share capital.
Introduction
As per Section 2(8) of Indian Companies law (2013), the term ‘authorised capital’ means the capital validated by the company’s memorandum to stand apart as the maximum tagged amount of the firm’s share capital. The enterprise will be eligible to grow its ventures to the upper limit of this ‘authorised capital‘.
In future, if the business owners wish to expand the possibilities further by injecting more funds than to start the process. The enterprise shall have to grow this sum by maintaining the actions we are about to put forward in today’s topic.
What is the Necessity to Increase Authorised Share Capital?
With time each corporate organisation requires more resources to maintain business standards. The management decides on these resources depending on the business’ short-term and long-term goals. To satisfy smaller goals, the stakeholders resort to taking a loan from banks or, sometimes, deciding on procuring advance deposits. But these are temporary solutions; the company requires greater funding sources in the broader arena. When we consider a Pvt. Ltd company, increasing authorised share capital is realised through the processes we are about to discuss.
The regulations of the Companies law outline the protocols of such companies as they are bound to work following the principles of this Act as long as they continue their ventures across India. The MOA vividly declares the paid-up capital and authorised capital of any Pvt. Ltd company when the enterprise registers its corporate entity for the first time in India. Therefore the business can issue new shares not crossing this limit. When the company decides to generate more shares exceeding its previous limit, it issues amendments that the MOA shall agree upon.
Increase Authorised Share Capital in India
All companies must grow their authorised share capital once the business owners have decided on generating new equity shares. Also, in this connection, the company increases its paid-up capital. We all know that authorised share capital by law happens to be the net asset value of all shares registered under a brand.
On the other hand, paid-up capital is nothing but the gross value of registered shares within a company’s authority.
By no means the authorised capital can be lesser compared to the company’s paid-up capital. For example, suppose an enterprise presents an authorised share capital of ₹ 10,00,000/- along with an equal sum for its paid-up capital. In that case, the data infers that to accommodate new shareholders, the company must:
- Enhance the number of shares by growing its authorised share capital, otherwise
- The business owners need to transfer shares from the current shareowners to the latest patrons.
Under common circumstances, the first procedure generally appears to be most business people’s go-to policy. However, the alternative method is also applicable irrespective of the venture or project’s stage.
To connect with legal advisors, consider contacting Vakilsearch’s core committee by writing to us. We will further assist you on how you can increase authorised share capital.
How to Grow the Authorised Share Capital
- Check the Company’s AOA: The provisions of an enterprise’s AOA must be verified before we move on with the subsequent steps. If we find no related scope for enhancement, then the advice to the concerned business owners would be to cast necessary amendments in the firm’s AOA. This must not be an issue in a modern business scenario as most companies showcase full-proof policy in their AOA. Still, as a precautionary measure, we must check this step.
- Conduct Board Meeting: Directors must be aware of all core decisions. Therefore if the stakeholders agree on increasing the authorised share capital, a board meeting has to be fixed. And the notification for the same event needs to be issued addressing each Director.
Once this step has been checked, a follow-up meeting involves all shareholders. We refer to this as the Extraordinary General Convention. Stakeholders vote whether they want to increase the company’s authorised share capital.
The Company Secretary presents the report of this meeting to the Board of company Directors to generate a consensus. The company’s auditors receive the final report after all these intermediary stages have been successfully passed.
File ROC Forms: This step comes in once the general resolution has been approved in the company’s Extraordinary general convention form (Form SH7). This document must be filed without fail in a period not exceeding 30 days post approval of the ordinary resolution. A predetermined charge (processing fee) has to be given to the governmental agencies before making the below-mentioned documents ready for submission.
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- Notice issued after the Extraordinary General Convention
- Validated original copy of the company’s ordinary resolution
- Edited memorandum of Association. This document must mention the renewed authorised capital.
The Registrar readily approves these kinds of applications where the company wishes to increase its number of shares. For that, all the business owners need to follow the policies stated in the company’s law. The working protocols should never challenge the regulations of this Act; otherwise, the Registrar may disapprove upon repeated requests. Attempts to increase the authorised capital share will fail miserably at such events. The Ministry of Commercial Affairs enlists the renewed authorised capital duly on their official portal; stakeholders can check this information to verify the completion of the process.
Now let us grab a brief idea about the share allotment once the MCA has approved the request. Once the increment has been done, the company has complete authority to enhance its paid-up share margin. To do this, they declare the issuance of new equity shares.
Minimum Authorised Stock of a Company in India
Suppose we consider Ltd Companies then, as per Government declarations, the business needs to feature at least ₹ 5,00,000/- as authorised share capital. However, the limit is much lower for Pvt. Ltd Companies where the minimum figure lies about ₹ 1,00,000/-.
Increasing this capital becomes necessary in due course as the business continues to grow; otherwise, the paid-up capital cannot be increased, and as a result, the owners will not be able to issue newer equity shares. A board meeting is held to take such vital steps.
Conclusion
This article served as a guideline on increasing authorised share capital for your company. Many things need to be assured, and finally, compliance with the Companies Act is necessary to seek approval from the concerned Registrar.
Vakilsearch has presented other similar databases about the registration of Limited Enterprises. You can also find the difference between paid-up capital and authorised capital if you go through our content.
