It is essential to decide what the share capital of the company is and how we can increase authorized share capital when an entrepreneur decides to get a company registered and decides what structure is most appropriate for the business and other co-owners.
Stockholders buy shares from the company and exchange them for cash or other considerations for share capital, which is the portion of the company’s equity that has been raised through shares. Government regulations prohibit companies from issuing shares indiscriminately for the purpose of raising capital to maintain financial decorum. Therefore, authorised share capital is the maximum amount of share capital that a company may legally issue to shareholders.
Increase in Authorised Share Capital Process
Section 61 of the Companies Act, 2013 (read with sections 13 and 14) specifies that the authorized share capital may be increased at any time.
The first step is to verify that the articles of association have been approved
According to Section 61 of the Companies Act, 2013, approval of the Articles of Association is a prerequisite for expanding the Authorised offer capital. To increase the authorised share capital, you must ensure that all necessary provisions are outlined in the Articles.
According to Section 14 of the Companies Act, 2013, if the Articles do not authorize an increase, the Articles must be amended to allow the same before proceeding. A special resolution should be passed to amend the Articles of Association.
Second step: Notifying the board that the EGM has happened
Following a board meeting, the matter of raising authorised share capital is discussed and voted on in an EGM. Upon agreement by the Board of Directors about the date, time, and location of the EGM, a notice for the same is sent to all members/shareholders, directors, and auditors of the company, who will then vote on the matter of raising authorised share capital, as specified in Section 101 of the Companies Act 2013.
Further, the notice is required to include information on the voting method and the explanation required by Section 102 of the Companies Act in order to pass the special resolution.
The third step is to hold an extraordinary general meeting
After you have sent out notice of the upcoming EGM and the meeting has started, you will discuss and vote on the matter of increasing the authorised share capital as set forth in the notice. In order to increase the company’s authorised share capital, an Ordinary Resolution is passed under section 61(1)(a) of the Companies Act, 2013.
The fourth step is to document the ROC Form
As prescribed by Section 64, Form SH-7 must be filed with the concerned Registrar of Companies (RoC) within 30 days of the passing of Ordinary Resolution. Along with the modified MoA and AoA, the following attachments must be submitted with e-form SH-7:
- Resolution of the Board for an increase in the authorised share capital;
- Resolution of the Board amending the capital clause of the Memorandum of Association;
- The EGM passed the shareholders’ resolution.
The RoC will then review the forms and attachments. The RoC must approve the increase in authorized share capital if all requirements have been met.
Click here to know more: how to increase authorised share capital
Read more,