Each business needs more funds over time to run its business. These funds can be required on a long- and short-term basis. A short-term need can be satisfied by taking loans and advances. But in the run, the company will require more funds. For a Private Limited Company, this can be done by increasing the authorized capital of the company. Since the private limited company is governed and regulated under the Company Act to make changes in the structure it is necessary to follow the Act and the rules stated.
While registering the Private Limited Company the authorized and paid-up capital is specified in the MOA of the company. The company can therefore issue new shares within the limit of the authorized capital mentioned in the MOA. If the company wishes to issue more shares than the limit that is specified then amendments need to be done in the MOA.
According to Section 2 (8) of the Companies Act, 2013 “Authorized Capital” is the capital that is authorized by the memorandum of the company to be the maximum amount of the share capital of the company.
The company can expand its business to the level of authorized capital. In case the company has to expand the business by infusing more funds than at first, the company has to increase the authorized capital by following the steps that are mentioned in this article.
A company may need to increase the authorized share capital before it is issuing new equity shares and increasing the paid-up capital. As authorized share capital is the total value of the shares a company can issue. The paid-up capital is the total value of the shares of the company that have been issued.
The Paid-up capital does not exceed the authorized capital. Hence, if the company has authorized capital of Rs.10 lakh and paid-up capital of Rs.10 lakh and would like to induct new shareholders then it can be done by:
In most cases after the new shares are issued the authorized capital increases.
Before starting with the procedures for increasing the authorized share capital it is necessary to verify the AOA to ensure that there is a provision in the Articles of Association referring to the increase of the authorized share capital. If there is no such provision then the company must first make changes to the AOA of the company.
Note: Most of the AOAs have the provision for increasing the authorized share capital of the company.
It is necessary to convene a Board meeting by providing notice to the Director to increase the authorized share capital of the company. At the Board meeting, it is necessary to obtain approval from the Board of Directors for increasing the authorized share capital.
After this whole procedure, a date should be fixed to conduct an Extra-ordinary General meeting to obtain the approval of the shareholders for increasing the authorized share capital and make changes to the MOA of the Company.
At last get the approval of the Board of Directors, the company secretary who is present at the meeting to present the notice of Extraordinary general meeting to the shareholders. Basing the approval, the notice of an extraordinary general meeting should be presented to all the shareholders, directors, and auditors of the company.
Conduct the extraordinary general meeting and obtain the approval of the shareholders to increase the authorized share capital on the time, date, and place that is mentioned on the notice.
The approval of the shareholders to increase the authorized capital must be in the form of an ordinary resolution.
After the ordinary resolution is passed at the Extraordinary general meeting Form SH7 should be filed by the company within 30 days of passing the ordinary resolution. The prescribed government fee for the authorized capital must be paid and the documents mentioned below must be attached.
If the procedure mentioned in the Companies Act and the Companies Rules are followed to increase the authorized capital of the company then the registrar would approve the filing and increase the authorized share capital of the company. The new authorized share capital will be reflected on the MCA portal.
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