Because of the company’s growth, each firm needs more capital to continue running the business. This money may be invested for either a short or a lengthy period. If a firm has a need that may be addressed in the near term, it may consider applying for loans or advances from the bank or investors. The firm may need more funding for a long time. A firm can do this by raising the amount of its authorized capital. Because the Government and Company Act governs the operations of private limited companies, a specific protocol must be adhered to increase the amount of permitted share capital.
In the company’s memorandum of association (MOA), the maximum amount of approved and paid-up capital should be specified. If the firm wishes to issue more shares than the maximum specified in the MOA, it will first need to modify the language included in the MOA.
Approved capital is defined by the Companies Act, 2013, Section 2 as the capital authorized by the company’s memorandum as the maximum amount of the share capital.
“Approved Capital" is defined as the capital authorized by the company’s memorandum to be the maximum amount of the share capital of the business in accordance with Section 2 (8) of the Companies Act, 2013. This definition may be found in the Companies Act 2013.
Before issuing equity shares, a corporation should carefully consider whether or not to expand the total amount of authorized share capital. The absolute value of shares a business is permitted to issue is the authorized capital. In contrast, the whole matter of the company’s claims is paid money.
It is not acceptable for the paid capital to be more than the allowed capital. On the other hand, the firm has a paid-in capital amount of Rs. 20 lakh and an allowed capital amount of Rs. The incorporation of additional shareholders is a possibility.
Verify Articles Of Association Of The Company
Before beginning the process of increasing authorized share capital, it is necessary to verify the Articles of Association to ensure a provision in the Articles of Association that addresses increasing share capital. If there isn’t a provision that addresses increasing share capital, the procedure cannot begin. If there is not already a provision in the AOA that addresses this matter, the business must first modify the existing language in the document.
However, most of the Articles of Association consist of the authorized share capital of the business; thus, if you don’t already have one, you should consider revising the document.
Commence A Board Meeting
The board meeting has to get started as soon as possible. A notification will be sent to the director to call for a board meeting to discuss raising the company’s maximum permissible share capital. Approval of the board of directors is necessary.
Setting a date for holding the Extraordinary General Meeting is something that must be done to acquire the consent of all of the company’s shareholders before increasing the authorized share capital and making the necessary modifications to the company’s MOA.
Following the conclusion of all of the necessary steps, the company secretary, who is present at the meeting, will distribute the notice of the extraordinary general meeting to the company’s shareholders, auditors, and directors.
An extraordinary general meeting has to be held to get the shareholders’ buy-in for an increase in the company’s total number of authorized shares of stock. Everything, including the time, the date, and the location, should be specified on the notification.
The shareholders’ consent must be submitted in the form of an ordinary resolution notice.
File ROC Forms
Following the passage of the ordinary Resolution at the meeting, the firm must fill out an SH7 form within the following thirty days. Along with the following papers, you are required to pay the number of fees that the government has mandated:
Suppose the process of raising share capital is outlined in the Companies Act, and the Companies’ regulation is followed. In that case, the registrar will provide approval for the filing and increase the amount of permitted share capital. It will appear on the Ministry of Corporate Affairs website after it’s been updated.
Distribution of Shares to Owners
Paid-up share capital may be raised by issuing new equity shares after increased authorized share capital.
Within 30 days of passing the resolution, a company must file an eForm SH-7 and eForm MGT-14, along with prescribed fees.
A company cannot reduce its authorized capital legally. But can cancel the portion of share capital and reduce the share capital by the amount.
The authorized capital of the company equals the number of shares a company can issue to its shareholders. To increase the capital, a company should make sure the Article of Association must have a provision related to increasing capital.
You need to issue new shares and allocate them in the executive gathering to increase the paid-up capital.
If such a provision does not exist, the company will be required to take the procedures necessary to amend its articles of association in line with Section 14 of the Companies Act of 2013.
To increase the amount of authorized share capital, you must submit Form MGT-14 and SH-7 to ROC within thirty days, beginning on the day the Resolution to do so is passed.