DEFINITION OF AUTHORISED CAPITAL:-
As per Section 2(8) of the Companies Act, 2013, ‘authorised capital’ or ‘nominal capital’ means such capital as is authorised by the memorandum of a company to be the maximum amount of share capital of the company.
Therefore it is cleared via above mentioned definition that company can expand its business upto the level of authorised capital. If you want to expand your business by infusion of more funds then first you have to increase your authorised capital by following the few steps as mentioned below in the procedure to increase authorised capital.
Let see few examples over the same:-
1. XYZ Pvt. Ltd company limited by shares having a paid up capital of Rs.1,00,000 (10,000 equity shares of Rs. 10 each) and authorised capital is also Rs. 1,00,000 (10,000 equity shares of Rs. 10 each) , intends to expand its business via raising fund of Rs. 5,00,000 by further issue of 50,000 equity shares of Rs. 10 each. What would be the steps company have to take to raise fund of Rs. 5,00,000 ?
As we know that XYZ Pvt. Ltd can expand its business upto the level of authorised capital. Therefore company is required to increase its authorised capital first because company revised paid up capital will exceed existing authorised capital. Let see how
|Existing paid up capital
|Addition via issue 50,000 equity shares of Rs. 10 each
|Revised paid up capital
Revised paid up capital is Rs. 6,00,000 exceeds the existing authorised capital of Rs. 100,000. Therefore first it is required to increase the authorised capital from 1,00,000 to 6,00,000 then only company can raise fund via further issue of shares.
Steps to be followed:-
1. Filing of form SH-7 to increase its authorised capital from 1,00,000 to 6,00,000 with the registrar of company (ROC).
Revised structure seems as follow:-
|Existing authorised capital
2. Level of authorised capital now increased from 1,00,000 to 6,00,000 with the approval of ROC ,therefore company can allot 50,000 equity shares of Rs. 10 each
3. Company will receive amount of Rs. 5,00,000 from the subscribers of shares as application money in respect of shares proposed to allot to them.
4. Filing of form PAS-3 (Return of allotment) within the period of thirty days from the date of allotment with the ROC.
2. XYZ Pvt. Ltd company limited by shares having a paid up capital of Rs.1,00,000 (10,000 equity shares of Rs. 10 each) and authorised capital is Rs. 6,00,000 (60,000 equity shares of Rs. 10 each) intends to expand its business via raising fund of Rs. 5,00,000 by further issue of 50,000 equity shares of Rs. 10 each. What would be the steps company required to take to raise fund of Rs. 5,00,000 ?
As we know that XYZ Pvt. Ltd can expand its business upto the level of authorised capital. Company authorised capital is Rs. 6,00,000 and paid up capital is Rs. 1,00,000 therefore company can easy expand its business via raising fund of Rs. 5,00,000 by further issue of 50,000 equity shares of Rs. 10 each.
Company is not required to increase its authorised capital because the sum of existing and revised paid up capital is not exceeding amount of authorised capital.
|Existing paid up capital
|Revised paid up capital
|6,00,000 equal to the authorised capital
BEFORE TO GO FOR THE PROCEDURE, LET FIRST UNDERSTAND WHAT LAW SAYS ABOUT IT:-
As per Section 61, 64 read with rule 15 of The Companies (Share Capital and Debentures) Rules, 2014, A limited company having a share capital may, if so authorised by its articles, alter its memorandum in its general meeting to—
(a) increase its authorised share capital by such amount as it thinks expedient;
(b) consolidate and divide all or any of its share capital into shares of a larger amount than its existing shares:
*Provided that no consolidation and division which results in changes in the voting percentage of shareholders shall take effect unless it is approved by the Tribunal on an application made in the prescribed manner;
(c) convert all or any of its fully paid-up shares into stock, and reconvert that stock into fully paid-up shares of any denomination;
(d) sub-divide its shares, or any of them, into shares of smaller amount than is fixed by the memorandum, so, however, that in the sub-division the proportion between the amount paid and the amount, if any, unpaid on each reduced share shall be the same as it was in the case of the share from which the reduced share is derived;
(e) cancel shares which, at the date of the passing of the resolution in that behalf, have not been taken or agreed to be taken by any person, and diminish the amount of its share capital by the amount of the shares so cancelled.
Shall file a notice in the prescribed form i.e (SH-7) with with the Registrar within a period of thirty days of such alteration or increase or redemption, as the case may be, along with an altered memorandum.
PROCEDURE OF INCREASE IN AUTHORISED CAPITAL:-
1. Authorisation must in the Article of Association(AOA):-
Before to go for increase of authorised capital, first need to check whether the company AOA contains provision for increase in authorise capital as it is first condition mentioned in the section 61 as we read above also that if it is authorise by the article then only company can increase its authorise capital.
If AOA doesn’t contain the provision for increase in authorised capital, then first we have to alter the articles as per the provision of Section 14 of the Companies Act, 2013 after that we can proceed towards the increase in authorise capital.
2.Calling of Board Meeting of Board of Directors (BOD):-
BOD of the company in the board meeting discuss and approve the following:-
3.Holding of Extraordinary General Meeting (EGM):-
Call and hold the Extraordinary General Meeting (EGM) of the members on the Day, Date, Time, & Venue as decided by the board of directors in their board meeting and the pass the resolution for increase in authorise capital by passing ordinary resolution.
4.Alteration in Memorandum of Association(MOA):-
Alter the clause of authorise capital in the MOA of the Company.
A limited company shall file form SH-7 with the Registrar of Company within the period of period of 30 days of such alteration along with the following attachment:-