Overview

Each business needs more funds over time to run 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 for 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 Capita" is the capital that is authorized by the memorandum of the company to be the maximum amount of the share capital of the company.

Increase Authorized Capital Of Your Company

Checklist for Increasing Authorized Capital of Your Company

• Check the provisions of the AoA to increase authorised share capital
• If the AoA does not permit an increase, then the AoA must be modified as per Section 14 of the Companies Act of 2013
• Issue a notice for calling a board meeting to modify the AoA in order to approve the increase in authorised share capital
• Issue a notice for calling an extraordinary general meeting to modify the AoA in order to approve the increase in authorised share capital
• Issue the notice at least 7 days before the board meeting and 21 days before the EGM

Benefits of Increasing Authorized Share Capital

Stated below are few benefits of increasing authorized share capital :

• Increases Share Capital : A company can raise whatever authorised capital as they decide upon and the same will be mentioned in the MoA with revisions. Hence, increasing authorised capital has an incremental effect on the overall company share capital.
• Enhances Borrowing Capacity: With the increase in share capital, the company's overall net worth also increases. This further enhances the borrowing capacity of the company.

Documents required to Increase Authorized Capital of your company

The documents must be filed with the MCA within 30 days after obtaining consent from the shareholders for the share capital increase.

• Digital signature certificate (DSC) of any authorized director
• Memorandum of Association (MoA)
• Articles of Association (AoA)
• Certificate of incorporation
• PAN card of company

Procedure to Increase Authorized Capital of your company

• Verify AOA of the Company
  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.
• Convene a Board Meeting
  It is necessary to convene a Board meeting by providing notice to 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 extraordinary general meeting should be presented to all the shareholders, directors, and auditors of the company.
• Extra-Ordinary General Meeting (EGM)
  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.
• File ROC Forms
  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.
  1. Notice related to the Extraordinary General Meeting
  2. Authorized True copy of the ordinary resolution
  3. The changed Memorandum of Association (Which depicts the higher authorized capital)
  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.
• Allotment of Shares
  Once the authorized share capital is increased the paid-up share capital of the company can be increased by issuing the fresh equity shares.

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