In order to carry out day-to-day operations or achieve long-term goals, every organization needs capital. The company has enough credit and loans to meet its short-term needs. As a result, there is a long-standing need for more capital. A company’s authorized share capital can be increased when such a demand arises. All private entities are governed by the Company Act, so any change in their structure will force them to adhere to its rules and regulations.
At the time of company registration, the paid-up & authorized capital must be included in the MOA. Within the limits of its authorized capital and paid-up capital, the company may issue new shares. The company must make relevant changes to the MOA if it wishes to roll out more shares than the threshold. Let’s start with the basics before we elaborate further on this subject.
How much capital is authorized?
In business, authorized capital refers to the maximum number of shares a company can issue to shareholders. The company cannot exceed this limit under any circumstances. However, that does not mean the company cannot violate this condition. Therefore, if the company wishes to issue more shares to shareholders, they must amend the MOA in accordance with the Companies Act.
Capital increase prerequisites
- Articles of association must contain a clause supporting an increase in authorized capital.
- Shareholder approval is required.
AOA and MOA vetting
In the context of authorized capital, it is important to determine a company’s AOA and MOA. A company must raise its authorized capital if its share issuance is likely to exceed the limit in its MOA.
It is imperative that the company determines whether this intentional increment complies with the company’s norms of association before proceeding. It is possible to change such a provision by amending the AOA.
AOA modification
Shareholders must authorize any changes to the AOA in a general meeting. Changes to the Articles of Association must be filed with MCA within one month of the date of resolution. Once AOA has been successfully altered, the company can move forward and follow the required procedures.
Meeting of the Board
Such decisions cannot be made by the company on its own. Members of the board and shareholders must be notified and their approval must be obtained. As per the Company Act, all shareholders should be notified in advance of the meeting. AGM or EGM dates and times must be specified by the company. The company’s Director is responsible for filing all relevant forms with the MCA.
Meeting of shareholders to be held
To receive approval on such critical matters, the Annual General Meeting must be held on the specified date and time. Meetings should resolve such matters through ordinary resolutions.
The ROC is notified
The revised MOA will be drafted once the board member’s approval is received. By filing the SH-7 form, a company must notify about the same. Within 30 days of the resolution, the form must be filed. In addition to the SH-7 form, the following document must be attached.
- Resolution of the Board (copy) for alterations to the AOA
- Resolution of the Board (copy) to alter the Memorandum of Agreement
- AGM/EGM notification
- Resolution of the shareholders (copy)
- AOA amended (copy)
- MOA amended (copy)
Once MCA approves the MOA and AOA, the company can easily modify them. If any changes are made to the MOA or AOA, the company should display them on its official website.
How do MOAs and AOAs differ?
In contrast, the AOA is abbreviated as Articles of Association. These documents display the company’s vital information to shareholders and other stakeholders in a clear and concise manner.
MOA provides the following information to its shareholders
- Inscription
- Goals
- Aims
- Address of registered office
- Limitation of liability clause
- A minimum amount of paid-up capital
- The company’s share capital.
Basically, it shows how connected the company is to the outside world.
In order to consolidate with the Registrar of Companies (ROC), the enterprise must submit AOAs. Combined with the AOA, the MOA constitutes the company’s constitution.
Final thoughts
As a result, the decision to increase authorized share capital is entirely up to the company. However, the company is not entitled to serve this purpose without the approval of its board members and MCA. While executing such an action, the company must comply with all mandatory provisions. Please don’t hesitate to contact us if you need any assistance. We are committed to resolving your doubts in an intuitive and timely manner.
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