Procedure to Increase Authorised Share Capital
A company may need to increase its authorized share capital before issuing new equity shares and increasing paid-up capital. Authorized share capital is the total value of shares a company can issue, while paid-up capital is the total value of shares the company has issued. Paid-up capital can never exceed authorized capital. Hence, if a company having an authorised capital of Rs.10 lakhs and paid-up capital of Rs.10 lakhs would like to introduce new shareholders, it can do so either by:
- Increasing authorized share capital and issuing new shares. (or)
- Transferring shares from existing shareholders to the new shareholders.
In most cases, new shares are issued and authorized capital is increased. In this article, we will look at the procedure for increasing authorized share capital in detail.
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Verify AOA of the Company
Before commencing with the procedure for increasing authorized share capital, verify the AOA to ensure there is enabling provision in the Articles of Association (AOA) particularly with reference to increase authorized share capital. If there are no provisions for increasing authorized share capital, the company must first make changes to the AOA of the company.
Note: Most of the AOA’s will have enabling provisions for increasing authorised share capital.
Convene Board Meeting
To increase the authorized share capital, first, convene a Board Meeting by sending notice to the Director. At the Board Meeting, obtain approval from the Board of Directors for increasing authorized share capital. Then fix a date, time and place for conducting an Extra-Ordinary General meeting to obtain approval of shareholders for the increase of authorized share capital and making changes to the MOA of the company.
Finally, obtain approval of the Board of Directors of Company Secretary present at the meeting to present notice of Extra-Ordinary General Meeting to the shareholders. Based on the approval, present the Notice of Extra-Ordinary General Meeting to all shareholders, Directors and Auditor of the Company.
Extra-Ordinary General Meeting
On the time, date and place mentioned on the Notice of Extra-Ordinary General Meeting, conduct the Extra-Ordinary General Meeting and obtain shareholders approval for increase of authorized capital. The approval of shareholders for increasing authorized share capital must be in the form of an ordinary resolution.
File ROC Forms
Once the ordinary resolution is passed at the Extra-Ordinary General Meeting, Form SH-7 must be filed by the company within 30 days of passing of ordinary resolution. Along with Form SH-7, the prescribed government fee for authorized capital must be paid and the following documents must be attached:
- Notice related to EGM.
- Authorized True copy of Ordinary Resolution.
- Changed Memorandum of Association. (Showing higher authorized capital)
If the procedures for increasing authorized capital are followed as mentioned in the Companies Act and Companies Rules, then the Registrar would approve the filing and increase the authorised share capital of the company. The new authorized share capital of the company would be reflected on the MCA portal.