Over time, any firm will require more money to operate. Both long-term and short-term need for these finances are possible. Taking out loans and advances might be used to meet an immediate necessity. However, the business will need more money for the run. This can be accomplished for a Private Limited Company by raising the company’s authorised capital. Since the Company Act governs and regulates the private limited company, it is vital to abide by the Act and its requirements while making modifications to the structure.
The MOA of the firm specifies the authorised and paid-up capital when the Private Limited Company is registered. As a result, the corporation may issue more shares up to the authorised capital stated in the MOA. Changes to the MOA must be made if the firm wants to issue more shares than the set maximum.
What exactly is Authorized share capital?
The capital that is specified in the company’s memorandum as being the maximum amount of the share capital of the company is referred to as “Authorized Capital” in accordance with Section 2(8) of the Companies Act of 2013.
The firm can grow up to the allowed capital level for the corporation. The company must increase the authorised capital by taking the actions described in this article if it needs to expand its business by investing more money than it did at initially.
Increase in Authorized Share Capital
Before issuing additional equity shares and raising paid-up capital, a firm may need to increase the authorised share capital. The total amount of shares a corporation is permitted to issue is known as authorised share capital. The total value of the issued shares of the corporation makes up the paid-up capital.
The permitted capital is not greater than the paid-up capital. So, if a corporation with Rs. 10 lakh in authorised capital and Rs. 10 lakh in paid-up capital wants to add more shareholders, it can do so by:
A share transfer from existing shareholders to new shareholders, an increase in the authorised share capital, or both.
1. Verify the company’s AOA.
It is vital to check the AOA to make sure that there is a provision in the Articles of Association related to the expansion of the authorised share capital before beginning the procedures for doing so. The company must first make amendments to the AOA of the company if there is no such provision.
2. Set a Board Meeting Date
To enhance the company’s authorised share capital, a Board meeting must be called and notification given to the director. To increase the authorised share capital, the Board of Directors must provide their consent at the meeting.
3. Extra-Ordinary General Meeting
On the time, date, and location specified in the notification, hold the extraordinary general meeting and get the shareholders’ consent to increase the authorised share capital.
4. Submit ROC forms
The corporation must file Form SH7 within 30 days of the passing of the ordinary resolution following its adoption at the Extraordinary General Meeting.
The documents listed below must be submitted, together with the specified government charge for the permitted capital.
a. Extraordinary General Meeting’s notice
b. Authorized True copy of the ordinary resolution
c. Memorandum of Association amendment (Which depicts the higher authorised capital)
5. Allotment of Shares
When the authorised share capital is raised, the company’s paid-up share capital can also be raised by issuing more equity shares.
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Disclaimer: The above article is only for information purpose and is on based on the author’s interpretation of the relevant provision. The same should not be considered as professional advice.