Every form of business needs funds to run the business. It can be a short term or long term requirement. A short term need will have options like taking loans & advances. But a long term need will require bringing in more capital. In a private limited company, such need can make way to increase the authorized share capital of a company. Since the Company Act governs a private entity, making changes in the structure will them to follow a procedure in the Act and Rules.
At the time of private limited company registration, the authorized and paid-up capital is specified in the MOA of the company. The company can issue new shares within the limit of such specified authorized and paid-up capital. If the company wants to issue more shares than the specified limit then it has to amend the MOA. So first let us understand the authorized and paid-up share capital in a company.
What is the authorized capital?
It is the maximum limit of share capital up to which a company can issue its shares to shareholders. A company is not authorized to issue shares beyond the specified limit. Hence, if a company wants to issue shares beyond the limit then it has to amend its MOA as per the Companies Act.
Pre-requisites of increase in authorized capital
- An Articles of Association must have a clause for an increase in authorized capital
- Shareholders’ approval is a must.
Step 1: Vetting of MOA and AOA
A company must check its MOA and AOA about the limit of
Alteration of AOA:
To alter the AOA, the company must take approval from the shareholders in an annual general meeting or extra-ordinary general meeting. Such altered AOA must be filed with MCA within 30 days from the date of the resolution.
Once the AOA is altered, it can proceed with further procedure to increase authorized capital.
Step 2: Holding Board Meeting
A board meeting must be arranged to take the approval of the board to increase authorized share capital. Further, to decide the date and time to call an AGM or EGM to take the shareholders’ approval. A notice for holding an AGM or EGM must be sent to all the shareholders as per the rules. A director must be authorized to file all the necessary forms with the MCA.
Step 3: Hold Shareholders Meeting
The company shall hold the AGM/EGM on the specified date and time to take the approval for an increase in authorized capital. An ordinary resolution must be passed in the meeting.
Step 4: Intimation to the ROC
After taking approval in shareholders meeting a company shall draft the altered MOA to increase authorized share capital. A company has to intimate about the same by filing form SH-7 with the MCA. The form must be filed in 30 days from the date of resolution. The documents required to file the said form are as under.
- A certified true copy of Board resolution for alteration in AOA
- A certified true copy of Board resolution for alteration in MOA
- Notice of AGM/EGM
- A certified true copy of Shareholders resolution
- Altered copy of AOA
- Altered copy of MOA
After receiving approval from the MCA, a company shall alter its every copy of the MOA and AOA. It is necessary to incorporate changes in AOA and MOA and put it up on website if any.
To sum up, it all boils down to whether or not the Company has the authority and permission to increase authorized share capital or not. Accordingly, it must comply with the process of increasing share capital. Also, filing up all the necessary forms with MCA within the due dates is another