Authorized share capital, also known as authorized capital, is the maximum number of shares that a company can issue to its shareholders. It is a limit set by the company’s articles of association and represents the total value of the company’s shares. Increasing the authorized share capital allows the company to issue more shares in the future, providing flexibility for various purposes such as fundraising, acquisitions, employee stock options, or strategic partnerships.
The process of increasing authorized share capital involves several steps, which may vary depending on the jurisdiction and the specific requirements of the company. Here is a general overview:
- Review Articles of Association: The company’s articles of association outline the rules and regulations governing the company’s operations, including provisions related to share capital. It is essential to review these articles to determine if they permit an increase in authorized share capital and to understand any specific procedures or restrictions that need to be followed.
- Board Resolution: The board of directors, after considering the need for increasing the authorized share capital, holds a board meeting to propose the increase. A resolution is passed, stating the intention to increase the authorized share capital by a specific amount or number of shares. The resolution should provide reasons for the increase and any conditions or restrictions associated with it.
- Shareholder Approval: Depending on the jurisdiction and the existing authorized share capital, shareholder approval may be required. The board of directors would convene a general meeting of shareholders and present the resolution for increasing the authorized share capital. Shareholders would vote on the proposal, typically requiring a special majority (e.g., two-thirds or three-fourths) for approval. The company must provide shareholders with sufficient information about the proposed increase to enable them to make an informed decision.
- Regulatory Filings: After obtaining shareholder approval, the company needs to make certain filings with the appropriate regulatory authorities. These filings can include submitting an amended memorandum of association, articles of association, and other required forms or applications. The specific documents and procedures vary depending on the jurisdiction. It is essential to consult legal and regulatory experts to ensure compliance with the applicable laws and regulations.
- Updating Records and Documentation: Once the necessary regulatory approvals are obtained, the company needs to update its records and documentation. This includes updating the articles of association and other relevant corporate documents to reflect the increased authorized share capital. The company may also need to update its registers of members and share certificates.
- Issuing New Shares: With the increased authorized share capital, the company can issue new shares as needed. The issuance of shares may involve additional procedures, such as offering the shares to existing shareholders (preemptive rights) or conducting a new share offering to the public. The specific procedures for issuing new shares are governed by applicable securities laws and regulations.
It is important to note that increasing authorized share capital does not automatically result in the issuance of new shares or dilution of existing shareholders’ ownership. It simply provides the company with the flexibility to issue more shares in the future if required. It is strongly recommended to consult legal and financial professionals who are familiar with the jurisdiction and company-specific requirements to ensure compliance with all applicable laws and regulations when considering an increase in authorized share capital.