Increase in Authorized Capital

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Hiral Vakil

PLC
Start & Run Business

The “Authorized Capital” is the maximum amount of share capital that a company can issue to its members/shareholders. For an increase in Authorized Capital there is a specified procedure.

Moreover, the amendment is obligatory in capital clause of Memorandum of Association after passing special resolution of board to increase the authorized capital of the company.

What is the procedure to increase authorized capital?

  1. Check Articles of Association authorization.

    Check whether Articles of Association authorizes the company to increase the share capital. If not, proceedings need to be done with the objective of altering them.

  2. Convene a Board Meeting.

    Convene a Board Meeting so as to enable the board to call for Extraordinary general meeting(if not passed at Annual General Meeting) to get approval from shareholders so as to increase authorized share capital.

  3. Send notice to call extraordinary general meeting.

    Send notice to call an extraordinary general meeting of shareholders with clear agenda, explanatory statements and also resolutions to be passed to alter Memorandum of Association and Articles of Association so as to increase authorized share capital.

  4. Pass the resolution for increasing authorized share capital.

    Pass the resolution for increasing authorized share capital of company and also do corresponding alterations in MoA and AoA by Special resolution.

  5. Authorize the board to file necessary forms.

    Authorize the board to file necessary forms as well as resolutions with ROC.

  6. File e-form SH-7

    Also, File e-form SH-7 within 30 days of passing Ordinary Resolution with ROC by paying the requisite fee. Further, after consulting the AoA the company has to convene a board meeting.

    Notice for general meeting is to be given to every member of the company not less than 21 days of commencement of meeting with place,date,day, time, as well as business to be transacted at the meeting.

    After the notice EGM is convened and the members vote in favour or in against increasing the authorized share capital of company and during the meeting alteration takes place.
    Then, after holding EGM members of the board pass an ordinary resolution.

How to alter Memorandum and Articles of Association?

A company by special resolution can increase its authorized share capital by altering the Memorandum of Association.

Further, Clause V of the Memorandum of Association and Clause 4 of the Articles of Association has to be altered. If the company is not authorized to amend the articles of association then it has to be amended by passing a special resolution and on every alteration of articles a copy of order approving such alteration has to filed with registrar with a printed copy of altered articles within period of 15 days.

Also, a notice is given to the registrar within period of 30 days of such alteration along with altered Memorandum.

Filing e-form SH-7

As per Section 64, when a company alters its share capital, or an order is passed by Government for increasing the authorized capital or company redeems any redeemable preference shares the notice of such alteration, increase or reduction shall be filed by the company with Registrar in Form SH-7 along with a fee on MCA Portal.

One needs to attach following documents :

Filing e-form MGT-14

A company has to file with concerned ROC certain resolutions as well as agreements after passing the resolutions at meeting.

Further, the particulars of such resolutions are to be file along with this form within 30 days of passing resolution.

Moreover, copy of every resolution or agreement along with explanatory statement under section 102 has to be annexed to the notice calling the meeting in which resolution is proposed with registrar in 30 days.

One has to attach following documents with the form:

FAQs

Whether Stamp Duty is applicable on increase in Authorized Capital?

Yes, Stamp Duty is payable on increase in Authorised capital.
Further, It is applicable as per the Stamp Act/Rules of concerned State/Union Territory.

What is the difference between authorized capital and paid up capital?

Authorized capital is the maximum capital that the company can raise through the sale of its shares.
Whereas, Paid up capital is part of called up capital which actually shareholders have paid and received by company.
Also, It can never be more than Authorized capital.

What is minimum Authorize share capital?

According to the definition under the Companies Act, the authorized capital of a company is the maximum amount of share capital for which shares can be issued by a company. Moreover, Rs 1 lakh initial minimum authorized capital is mandatory currently.

How to calculate authorized shares?

If you know the number of shares issued and unissued, or those authorized but not sold to shareholders, you can calculate authorized shares
Moreover, shares authorized = shares issued + shares unissued

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