Authorized Share Capital increase

A company may need to increase the authorized share capital before it is issuing new equity shares and increasing the paid-up capital. As authorized share capital is the total value of the shares a company can issue. The paid-up capital is the total value of the shares of the company that have been issued.

The Paid-up capital does not exceed the authorized capital. Hence, if the company has authorized capital of Rs.10 lakh and paid-up capital of Rs.10 lakhs would like to induct new shareholders then it can be done by:

• Increasing the Authorized share capital and issuing new shares (or)
• Transferring shares from the existing shareholders to the new shareholders.

In most cases after the new shares are issues the authorized capital increases. Connect with our advisors at info@taxinno.com for assistance with increasing the authorized share capital.

How to increase the authorized share capital of the company?

Verify AOA of the Company

Before starting with the procedures for increasing the authorized share capital it is necessary to verify the AOA to ensure that there is a provision in the Articles of Association referring to the increase of the authorized share capital. If there is no such provision then the company must first make changes to the AOA of the company.

Note: Most of the AOA’s have the provision for increasing the authorized share capital of the company.

Convene a Board Meeting

It is necessary to convene a Board meeting by providing notice to Director to increase the authorized share capital of the company. At the Board meeting, it is necessary to obtain approval from the Board of Directors for increasing the authorized share capital.

After this whole procedure, a date should be fixed to conduct an Extra-ordinary General meeting to obtain the approval of the shareholders for increasing the authorized share capital and make changes to the MOA of the Company.

At last get the approval of the Board of Directors, the company secretary who is present at the meeting to present the notice of Extraordinary general meeting to the shareholders. Basing the approval, the notice of extraordinary general meeting should be presented to all the shareholders, directors, and auditors of the company.

Extra-Ordinary General Meeting

Conduct the extraordinary general meeting and obtain the approval of the shareholders to increase the authorized share capital on the time, date, and place that is mentioned on the notice.

The approval of the shareholders to increase the authorized capital must be in the form of an ordinary resolution.

File ROC Forms

After the ordinary resolution is passed at the Extraordinary general meeting Form SH7 should be filed by the company within 30 days of passing the ordinary resolution. The prescribed government fee for the authorized capital must be paid and the documents mentioned below must be attached.

• Notice related to the Extraordinary General Meeting
• Authorized True copy of the ordinary resolution
• The changed Memorandum of Association (Which depicts the higher authorized capital)

If the procedure mentioned in the Companies Act and the Companies Rules are followed to increase the authorized capital of the company then the registrar would approve the filing and increase the authorized share capital of the company. The new authorized share capital will be reflected on the MCA portal.

Allotment of Shares

Once the authorized share capital is increased the paid-up share capital of the company can be increased by issuing the fresh equity shares.