Introduction: Understanding authorized share capital is crucial for businesses seeking expansion. In this article, we delve into what authorized share capital is and guide you through the process of increasing it for your company’s growth.
WHAT IS AUTHORISED SHARE CAPITAL?
As per Section 2(8) of the Companies Act 2013, Authorized capital” or “nominal capital” means such capital as is authorized by the memorandum of a company to be the maximum amount of share capital of the company.
In other words, an authorized share capital is the maximum amount of capital that the Company is permitted to issue to the shareholders of the Company.
This is determined at the time of the formation of the Company and it can be modified at any time after the establishment of the Company via approval of shareholders through the general meeting.
The limit of authorised share capital is determined under Clause V of the Memorandum of Association (MOA) of the Company and if the company wishes to increase its authorized capital, it must make amendments to the MOA.
Section 61 of the Companies Act 2013 deals with the alteration of share capital of the Company.
PROCESS FOR INCREASE IN AUTHORISED SHARE CAPITAL
- Modification in the Articles of Association (AOA) of the Company:
AOA of the Company governs the internal operations of the Company so in order to modify the share capital, provisions under AOA must be checked before proceeding with the modification.
If the provision in AOA allows to modify the share capital of the Company, the process is streamlined and there is no need to modify/amend the AOA otherwise, if the provision under AOA do not exist, AOA is first required to be amended before proceeding with the modification of share capital, in accordance with Section 14 of the Companies Act 2013.
- Conduction of Board Meeting:
Notice of Board meeting is required to be sent at least 7 days in advance to all the directors of the Company at their registered address, for the following purpose:
1. To consider increase in Authorised share capital of the company;
2. To approve and issue notice to the following for calling the General meeting of the shareholders of the Company for the said purpose.
- Auditors
- Shareholders
- Directors
3. To authorize Company Secretary of the Company or any other officer of the Company to issue notice of the General Meeting.
- Holding the Extra ordinary General meeting for obtaining the approval of the shareholders for increasing the share capital of the Company and pass ordinary resolution for approval of alteration of clause of MOA.
- Filing of ROC Forms:
File E-form MGT-14 with the ROC within 30 days of passing the resolution for increase in the share capital.
File E-form SH-7 with the ROC within 30 days of obtaining the approval of the shareholders.
INC-33 (Form for amendment in MOA) is filed as a linked form within 30 days from passing the resolution.
- Payment of stamp duty:
Stamp duty is paid online through MCA portal on the increased amount of the authorized share capital but only after the successful payment of the respective forms as stated above.
Conclusion: Increasing authorized share capital is a strategic move for business growth. By following the outlined process, businesses can navigate the legal procedures seamlessly. Ensure compliance with the Companies Act 2013 and witness the unlocking of your company’s true potential.
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Disclaimer: The entire contents of this editorial have been prepared on the basis of relevant provisions and as per the information existing at the time of the preparation. Although care has been taken to ensure the accuracy, completeness and reliability of the information provided, users of this information are expected to refer to the relevant existing provisions of applicable Laws. In no event the author shall be liable for damages resulting from the use of the information. This shall not be treated as solicitation in any manner or for any other purposes whatsoever.
The author of this editorial is the founder of AAKRITI GUPTA & ASSOCIATES (Practicing Company Secretary) firm based in Noida and can be reached out at [email protected].
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