Increasing authorized share capital helps bring in more capital! To increase the authorized capital, you need to pass an appropriate Board resolution and amend the capital clause of the Memorandum of Association (MoA).
It is the authorized capital of a private company that determines the maximum number of shares it can issue. Most start-ups begin with the minimum authorised capital of Rs. 1 lakh, which becomes too little as the business grows. To issue new shares or to raise the Authorised Capital, the capital clause of the Memorandum of Association is amended by passing a special resolution by the board.
A company can only raise its share capital beyond what it is prescribed in its MOA (Memorandum of Association) if authorised capital. Hence, increasing authorized capital has an incremental effect on the overall company share capital.
With the increase in share capital, the company’s overall net worth also increases. This further enhances the borrowing capacity of the company.
To increase the authorised capital and to issue new shares to existing promoters the following steps are required. A board meeting is called for all shareholders, and Form PAS-3 is filed with the Registrar of Companies (RoC) to intimate the allotment of new shares.
To issue new shares to new shareholders a valuation report is required, from a certified chartered accountant.
The documents must be filed within 30 days after obtaining consent from boards for the share capital increase with the MCA (Ministry of Corporate Affairs). The resolution passed is notified in MGT-14 and notice of increase is filed in SH-7
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