How to Increase Authorized Share Capital by following Legal Procedure

Private Limited Company

How to Increase Authorized Share Capital by following Legal Procedure

Registrationwala

Authorised share capital is the maximum number of shares that can be issued by a company to its shareholders. It is stated in a company’s Memorandum of Association. The authorised capital limit helps to protect the interests of shareholders. A company ensures its existing shareholders are not diluted by the issuance of new shares by limiting the number of shares that can be issued. Want to find out how to increase authorised share capital? Go through this blog post!

What is Authorised Share Capital?

Authorised share capital means the maximum value of shares a company can legally issue to its shareholders, according to the company’s Memorandum of Association and Articles of Association. The authorised capital limit is decided by the founders or board of directors of the company. By passing a special resolution, this limit can be increased.

A company's authorised share capital is a crucial aspect of its corporate governance framework. It establishes the maximum amount of money a company can raise through the sale of its shares and can have a big impact on how well the corporation can develop, grow, and pursue new business projects. 

Types of Authorised Capital

There are 6 different types of authorised capitals, namely, issued capital, unissued capital, reserve capital, paid-up capital, called-up capital and uncalled-up capital. Let’s understand each of these types in brief:

1. Issued capital

Issued capital refers to the portion of the company's authorised capital that has been issued to shareholders. Companies in India are mandated to disclose their issued capital within their balance sheets, according to Schedule III of the Companies Act 2013. 

2. Unissued capital

The portion of a company's authorised capital that hasn’t been issued yet is known as unissued capital. Simply put, unissued capital refers to the difference between a company’s nominal capital and issued capital.

3. Called-up capital

A company's called-up capital is the portion of its subscribed capital that it calls up in installments as needed. According to Section 2(15) of the Companies Act 2013, the called-up capital is the amount of a company's subscribed capital that the board of directors has asked shareholders to pay.

4. Uncalled-up capital 

Uncalled-up capital refers to the capital which makes up for the uncalled part of allotted capital. It represents the contingent liability of the shareholders on their shares.

5. Reserve capital

Reserve capital refers to the capital which cannot be called by the company unless it is being winded up or liquidated. To create a reserve capital, a special resolution must be passed with 3/4th majority in its favor. 

Once formed, the Articles of Association cannot be amended to make the reserve liability available at any point of time. Such capital cannot be pledged as security for obtaining loans by the company’s directors. Additionally, it cannot be transformed into ordinary capital unless the court’s order has been received and is only available to the creditors when the company winds up.

6. Paid-up capital

Paid-up capital of a company refers to the amount of money that the shareholders have paid to the company. It can be less than or equal to authorised capital. However, it can never be more than the authorised capital amount.

How can Authorised Share Capital be Increased?

To increase the authorised share capital, it is necessary to amend the company’s Memorandum of Association (MOA) to raise the maximum limit and then follow the prescribed legal procedure.

Procedure to Increase Authorised Share Capital

In order to increase the authorised capital, the following procedure must be followed:

Check the Company’s Articles of Association

If you want to increase the authorised capital, you must check whether the articles of association of your company has a provision for the same. 

In case there’s no such provision, then appropriate procedure must be followed to amend the AoA first.

Convene a Meeting of Board of Directors and Pass Board Resolutions

It is necessary to convene a meeting of board of directors and pass the necessary board resolutions for the following:

Record the minutes of the Board Meeting

The minutes of the board meeting finalized by the directors must be recorded within 30 days from the meeting's conclusion date. Each page of the minutes must be initialed by the Chairman. The Chairman must sign the last page and append to such signature the date on which the minutes were signed by them.

Send Notice of Extra Ordinary General Meeting

A notice of an extraordinary general meeting must be sent in writing at least 21 days prior to the scheduled meeting date. This notice may be sent by hand, ordinary mail, expedited post, registered mail, courier, facsimile, email, or by any other electronic means. 

Alternatively, as provided in the proviso to sub-section (1) of section 101, a general meeting may be called after giving a shorter notice. For this, the consent must be given in writing or by electronic mode by not less than 95% of the members entitled to vote at such a meeting.

Hold the Extra Ordinary General Meeting

The extra ordinary general meeting must be held on the fixed day and the ordinary resolution must be passed in favor of an increase in authorised capital. The detailed process to convene a extra ordinary general meeting has been provided in secretarial standard 2. 

Make relevant changes in MoA

After the approval has been obtained, the relevant changes must be made in the company’s Memorandum of Association in the relevant clause.

Record the minutes of Extra Ordinary General Meeting

Now, the minutes of the extra ordinary general meeting must be recorded. Then they must be signed and compiled.

Notice regarding Changes in Share Capital with the Registrar 

File a notice mentioning the changes in authorised share capital with the registrar of companies. This must be done using e-form SH-7 along with the prescribed fee and e-stamp duty. Along with this, the following documents must be attached:

Proceed with Increasing Paid-Up Capital

After the authorised share capital has been increased, the Company can proceed with the process of increasing paid-up share capital by issuance of fresh shares.

Note: Any alteration made in MoA of the company must be noted in every copy of this document.

Conclusion

A company might want to increase its authorised capital for several reasons, such as for addressing significant financial needs and funding new business ventures. The limit of authorised share capital can be increased by amending the Memorandum of Association. The exact procedure for this has been mentioned in this blog post. 

FAQs

Q1. What is the maximum authorised capital for private limited company?

A. The maximum limit of authorised capital for a private limited company in India has not been defined under the Companies Act, 2013. This means that there isn’t any maximum limit.

Q2. What is the minimum authorised capital for private limited company?

A. The minimum authorised capital for private limited company is Rs. 1 lakh.

Q3. Can issued capital be more than authorised capital?

A. No, an issued capital can never be more than authorised capital. No company can issue shares beyond its authorised share capital.

Q4. Can a company raise funds beyond its authorised capital?

A. No, a company can’t raise money beyond its authorised capital. This is because the authorised share capital is the maximum amount of funds that can be raised by a company from issuing its shares.

 

Last Update: 24-09-2024

 

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