“Authorized Capital”, is the maximum amount of share capital that a company can issue to its members/ shareholders. Here are the 2 most common reasons for Increase in Authorised Share Capital
- To raise the funds to expand the Business.
- To repay the Debts of the Company.
Generally, companies register with a small authorized capital and increase as per the requirements or conditions imposed by the lender/investors, customers.
Procedure for Increasing Authorised Share Capital
- Convene the board meeting for enabling the board to call for an extraordinary general meeting (if not passed at the Annual General Meeting) to get approval from the shareholders for increasing the authorised share capital.
- Call for an extraordinary general meeting of the shareholders of the company by sending a notice with clear agenda, explanatory statements and the resolutions to be passed to alter the Memorandum of Association and Articles of Association which are to be altered for the purpose of increasing the authorised share capital.
- Pass the resolutions for increasing the authorised share capital of the company and corresponding alterations in Memorandum of association and Articles of Association by special resolution.
- Authorise the board to file necessary forms and resolutions with ROC having jurisdiction.
- File the Form SH-7 with Roc by paying the requisite fee.
The Companies Act, 2013 earlier mandated that all Private Limited Companies have a minimum paid up capital of Rs.1 lakh.This meant that Rs.1 lakh worth of money had to be invested in the company by purchase of the company shares by the shareholders to start business.
Yes, Stamp Duty is payable on the increase in Authorised capital and is applicable as per the Stamp Act/Rules of concerned State/Union Territory.
– Authorised capital: Authorised capital is the maximum capital that the company is allowed to raise through the sale of its shares.
– Paid-up capital: It is the part of called up capital which has been actually paid by shareholders and received by the company. It can never be more than Authorised capital.