Meaning and Concept of Authorized 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.
♦ Therefore Authorized Share Capital is that maximum amount up to which a company can issue share. Issued Subscribed and Paid up capital of a company can never be greater than its authorized capital.
♦ Authorized Share Capital of every company limited by shares is mentioned in Clause V of Memorandum of Association.
♦ As Per Section 61 (1)(a) A limited company having a share capital may, if so authorized by its articles, alter its memorandum in its general meeting to increase its authorized share capital by such amount as it thinks expedient.
♦ The need to increase the authorize capital may arise when the company is planning to enlarge its operations by fresh issue of capital.
Lets take an example for understanding the concept of need to increase Authorized Share Capital:
XYZ Private Limited was incorporated in the year 2020 with Authorized, Subscribed and Paid Up Share Capital of Rs 1,00,000/- divided into 10,000 Equity Shares of Rs 10/-. Now in 2021 the company intends to expend its business by increasing its paid up capital by Rs 5,00,000/- through further issue of 50,000 Equity Shares of Rs 10/-. Now the problem arises that the company has already issued its capital upto the ceiling of its authorized share capital and for further issue of 50,000Equity Shares, First of all the company will have to increase its Authorized Shares by Rs 5,00,000/-
Procedure For Increasing Authorized Share Capital
For increasing authorized share capital, the following procedure has to be followed by a limited company having a share capital:
1. The company has to ensure that its articles of association contain a clause authorizing it to increase its authorized share capital. If there is no such provision, then the company has to take steps for alteration of its articles of association.
2. Issue notice for convening a Board meeting.
3. Hold the Board Meeting-
- to decide about the increase in the authorised share capital of the company;
- to fix time, date and venue for holding general meeting for increasing the authorised share capital of the company;
- to approve notice, agenda and explanatory statement to be annexed to the notice of the general meeting;
- to authorise the company secretary, if any or a Director to issue notice of the general meeting.
4. In case of a listed company, soon after the conclusion of the Board meeting, send to the stock exchanges, where the securities of the company are listed, particulars of the proposed increase in the authorised share capital of the company.
5. Issue notice of the general meeting to all members, directors and the auditors of the company.
6. In case of a listed company, send copies of the notice of the general meeting to the concerned stock exchanges.
7. Hold the general meeting and pass special resolution for increasing the authorised share capital of the company.
8. In case of a listed company, forward a copy of the proceedings of the general meeting to the concerned stock exchange.
9. File with the ROC within 30 days of passing of the resolution, Form MGT-14:
Following documents shall be attached with Form MGT-14:
- Certified true copy of the special resolution;
- Copy of the notice of general meeting and explanatory statement annexed to the notice;
- Copy of altered Memorandum of Association and Articles of Association.
10. File with ROC, Form SH -7 within 30 days of the passing of the resolution.
Following documents shall be attached with Form SH-7:
- Certified true copy of the special resolution;
- Copy of the notice of general meeting and explanatory statement annexed to the notice;
- Copy of altered Memorandum of Association.
11. Intimate stock exchange about alterations in memorandum and articles of the company within 24 hours of the occurrence of event.
12. Alter the capital clause in all the copies of the memorandum and articles of association of the company.
FAQS on Increasing Authorized Share Capital
Q.1 In which Clause of Memorandum of Association of a company limited by shares, Authorized Share Capital is mentioned?
Answer: The authorized Share Capital of the Company is mentioned in Clause V of Memorandum of Association.
Q.2 If the AOAdoes not contain a clause authorising it to increase its authorised share capital, then how can company increase its authorized share capital?
Answer: If there is no such provision, then the company has to take steps for alteration of its articles of association in accordance with the provisions of Section 14 of the Companies Act, 2013.
Q.3 Which Forms are required to be filed for increasing Authorized Share Capital by company?
Answer: Form MGT-14 and SH-7 are required to be filed with ROC within 30 days from the date of date of passing of Resolution for increasing authorized share capital.
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