Over time, any business takes more capital to run. This money could be required in both the long and near term. Loans and advances might help you meet a short-term financial requirement. However, more finances will be needed for the run to last longer. This can be performed for a Private Limited Company by increasing the company’s authorized capital. As, the Company Act governs and regulates the private limited company, any modifications to the structure must follow the Act and the rules outlined in the Companies Act, 2013.
What is Authorized Capital
The authorized share capital is the maximum amount of share capital that a corporation can issue and allot equity or preference shares up to. The Authorized Capital limit is specified in the Memorandum of Association under the Capital Clause, as per Section 2(8) of the Companies Act, 2013. It can be raised to fund the issuance of new shares and/or the infusion of more cash into the company.
Procedure to increase Authorized Capital
The Articles of Association are the rules and regulations that govern the company’s internal activities. So, before taking any action regarding the increase/reduction in authorized capital, the Articles of Association must be amended to check if there is a clause that allows for a change in the company’s authorized capital.
The process is expedited if the provision exists. If the provision does not exist, the Articles of Association must be modified in accordance with Section 14 of the Companies Act, 2013, before the business can proceed with the authorized capital adjustment.
The agenda for the meeting must be submitted to the directors’ registered addresses at least 7 days in advance. A resolution to call an Extraordinary General Meeting and provide notice in accordance with Section 101 of the Act, where the amended authorized capital clause in the Memorandum of Association can be offered for approval by passing an Ordinary Resolution. The specifics of the meeting, including the agenda, date, time, and location, must be communicated to the shareholders.
The Auditors, Directors and Shareholders shall be given notice of the Extraordinary General Meeting. The notice of the EGM must be given at least 21 days before the date of the EGM. However, a shorter notice period may be given if and only if the consent of at least 95% of the members entitled to vote at the meeting is obtained. Consent must be obtained by writing to electronic mode.
Step III: Holding EGM (Extraordinary General Meeting)
The topic of increasing the share capital is raised at the start of the meeting. The matter is subsequently decided through voting in a predefined order. After receiving approval and passing the resolution, the explanatory statement is attached, and the Authorized Capital is increased.
Within 30 days of the resolution being passed, a firm must file eForm SH-7 and eForm MGT – 14 (if applicable), along with the necessary fees, with the Registrar. To prevent penalties or eventual penalties for which the company and its officers will be held accountable, the paperwork must be delivered within the time range given.