INCREASED AUTHORIED CAPITAL

WHAT IS AUTHORIZED CAPITAL?

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 the authorized capital. In case the company has to expand the business infusing more funds than at first, the company has to increase the authorized capital by following the steps that are mentioned in this article.

AUTHORIZED SHARE CAPITAL INCREASE

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 lakhs would like to induct new shareholders then it can be done by:

v  Increasing the Authorized share capital and issuing new shares (or)

v  Transferring shares from the existing shareholders to the new shareholders.

HOW CAN THE COMPANY’S AUTHORISED SHARE CAPITAL BE INCREASED?

v  Verify the company’s AOA. It is vital to check the AOA to make sure that there is a provision in the Articles of Association related to the expansion of the authorized share capital before beginning the procedures for doing so. The company must first make amendments to the AOA of the company if there is no such provision.

v  Set a Board Meeting Date To enhance the company’s authorized share capital, a Board meeting must be called and notification given to the director. To increase the authorized share capital, the Board of Directors must provide their consent at the meeting.

v  Extra-Ordinary General Meeting On the time, date, and location specified in the notification, hold the extraordinary general meeting and get the shareholders’ consent to increase the authorized share capital.

v  Submit ROC forms The Corporation must file Form SH7 within 30 days of the passing of the ordinary resolution following its adoption at the Extraordinary General Meeting. The documents listed below must be submitted, together with the specified government charge for the permitted capital. a. Extraordinary General Meeting’s notice b. Authorized

v  True copy of the ordinary resolution c. Memorandum of Association amendment (Which depicts the higher authorized capital).

v  Allotment of Shares When the authorized share capital is raised, the company’s         paid-up share capital can also be raised by issuing more equity shares.

DOCUMENTS NEEDED FOR AUTHORISED CAPITAL

Once the board has passed the resolution during the EGM, your company is required to inform the Registrar of Companies (RoC) within 30 days about increasing the authorized capital.

Here is the list of documents you have to submit to the RoC:

FORM MGT – 14

This form is to be filed on the MCA portal, with the following details:

v  Company details, including the 21-digit Corporate Identification Number

v  Purpose of the form

v  A copy of the passed ordinary resolution

v  A copy of the resolution passed during the EGM

v  Details of the resolution

v  A copy of the updated Memorandum of Association and Articles of Association that shows provisions for increasing the authorized capital

v  Digital signatures and DINs wherever necessary

v  Notice prepared by the EGM

FORM SH – 7

Form SH-7 is filed to inform the RoC about the details of the increase in the authorized capital. You are supposed to file this form on the MCA website along with attaching the following details:

v  Company details, including the 21-digit Corporate Identification Number

v  Type of Resolution

v  Meeting date

v  Service Request Number (SRN) of Form MGT – 14

v  Mention the original authorized share capital and the new authorized share capital approved by the board of directors

v  Breakup of the additional share capital

v  Particulars regarding the Stamp Duty fees paid

v  Digital signatures and DINs wherever necessary

v  Original certified copy of the resolution passed regarding the capital alteration

v  A copy of the updated Memorandum of Association and Articles of Association that shows provisions for increasing the authorized capital

After filling out the forms, RoC will process your application. If RoC finds everything fine, it will approve the increase in authorized capital and update the master data on the MCA website.