The Capital or say fund is backbone if every business. So, this fund is called as Capital in case of Company. The amount of share capital or equity financing a company has can change over time. A company that wishes to raise more equity can obtain authorization to issue and sell additional shares, thereby increasing its share capital. Now lets us know difference between two important definitions which is confuses many.
Authorized Capital:- It is the maximum amount of the capital for which shares can be issued by the Company to shareholders. The Authorized capital is mentioned in the Memorandum of Association of the Company under the heading of “Capital Clause”.
A company does not usually issue the full amount of its authorized share capital. Instead, some will be held in reserve by the company for possible future use. The amount of share capital or equity financing a company has can change over time. A company that wishes to raise more equity can obtain authorization to issue and sell additional shares, thereby increasing its share capital.
Paid Up capital:- Paid-up capital is the amount of money a company has been paid from shareholders in exchange for shares of its stock. Paid-up capital is created when a company sells its shares on the primary market, directly to investors. Paid-up capital is important because it’s capital that is not borrowed. A company that is fully paid-up has sold all available shares and thus cannot increase its capital unless it borrows money by taking on debt. Paid-up capital can never exceed authorized share capital. In other words, the authorized share capital represents the upward bound on possible paid-up capital. Lets, get into its other aspects also.
What is increase in Authorized Share Capital of Company?
As per 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 general terms when a company add authorized share capital in existing authorized capital, it is defined as Increase in authorized share capital.
Why do company need to increase in authorized capital of company?
An increase in share capital is generally done in effect to increase Paid up share capital. As a company paid up capital can never surpass its authorized share capital. Hence, authorized share capital is maximum time increase prior to increase in paid up share capital.
Note that a company can never have paid up capital more than authorized capital.
What are provisions related to increase in authorized capital of company?
The following provisions governs the increase in authorized share capital:-
1) Section 13 of The Companies Act, 2013
2) Section 61 of The Companies Act, 2013
3) Section 64 of The Companies Act, 2013
4) Rule 15 of The Companies (Share Capital and Debentures) Rules, 2014
5) SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 as amended from time to time, in case of Listed Entity.
What kind of company are covered under the Provisions?
Every Kind of company is covered under the provisions of the Companies Act, 2013 like:-
1) Private Company
2) Public Company
3) One person company (OPC)
4) Listed Company
5) Producer Company
6) Nidhi Company, etc.
What is the process to Increase Authorized share capital of company?
The following process is followed for appointment of whole-time Director:-
1) Authorization in Article is must for Increase in authorized capital of the company
2) Sending of Notice of Board Meeting along with agenda to all directors of company.
3) Prior Intimation of Board Meeting to be held by company to Stock exchange
4) Convening of Board Meeting and passing of Board resolution for increasing share capital and also approve the draft of Extra Ordinary General Meeting (EGM)/ Annual General Meeting (AGM) for approval from Members of company.
5) Uploading of Outcome of Board Meeting on the stock exchange
6) Sending of Notice of Extra Ordinary General Meeting (EGM)/ Annual General Meeting (AGM) to all Directors, members and Auditor of the Company at least twenty-one (21) days before the Meeting.
7) Uploading of Notice of Extra Ordinary General Meeting (EGM)/ Annual General Meeting (AGM) on stock exchange
8) Holding of Extra Ordinary General Meeting (EGM)/ Annual General Meeting (AGM) and passing of Ordinary resolution by members.
9) Uploading of Outcome of Extra Ordinary General Meeting (EGM)/ Annual General Meeting (AGM) on the stock exchange on same day along with altered Memorandum of Association (MOA)
10) E-Forms filing to Registrar of Company within thirty (30) days from the passing or Resolution by members of company in Extra Ordinary General Meeting (EGM)/ Annual General Meeting (AGM)
11) Maintaining and keeping of Altered Memorandum of Association (MOA) at registered office.
What are the forms to Increase Authorized share capital of company?
Only Two forms are required for Increasing Authorized share capital of and these are:-/
a) MGT-14 within thirty (30) days
b) SH-7 within thirty (30) days
What are the documents required to Increase Authorized share capital of company?
The following documents are required: –
a) Intimation Board meeting to stock exchange wherever company is listed
b) Outcome of Board meeting
c) Board Resolution for Board Meeting
d) Notice of Extra-Ordinary General Meeting/ Annual General Meeting
e) Ordinary resolution passed in Extra-Ordinary General Meeting/ Annual General Meeting
f) Altered Memorandum of Association (MOA)
g) Any other as required.
What if company fails to comply with provisions related to Increase Authorized share capital of company?
The companies who is willing to increase its Authorized share capital shall abide by the above provision other wise
Where any company fails to comply with the provisions as stated above, such company and every officer who is in default shall be liable to a penalty of five hundred rupees for each day during which such default continues, subject to a maximum of five lakh rupees in case of a company and one lakh rupees in case of an officer who is in default
Disclaimer: – The above article is prepared keeping in mind all the important and basic question as well as provision of section 13, 61 and 64 of the Companies Act, 2013 and which comes in mind of a professional or other stakeholder while company is increasing authorized share capital. The author has tried to cover all the important and basic question. Under no circumstance, the author shall not liable for any direct, indirect, special or incidental damage resulting from, arising out of or in connection with the use of the information.
(The Author is Corporate Consultant and provides varied array of services including Start-ups mentor, Secretarial, Legal, Trademark, taxation, Audit, GST, Book keeping and other ancillary advisory service in Delhi, Chandigarh as well as The National Capital Region (NCR) and can be contacted through email id:- [email protected] and Contact Number: 91-8178515005)