The amount of capital that will be invested in the company is one of the most important decisions to make during incorporation. Increasing operations, size, scale, or structure may be considered as the business grows. An expansion of the company's share capital may be required to achieve that ambition. It may be necessary to raise more capital than what is authorized now. As a company issues shares to shareholders up to its authorized capital, it is known as the authorized capital. A discussion of benefits and procedures for increasing authorized share capital is presented. A company's capital needs increase over time to maintain its operations. Long-term and near-term cash needs may arise. A short-term requirement might be met with loans or advances. Funding will be needed for the run, however. Private Limited Companies may accomplish this by raising their authorized capital. When making changes to the structure of a private limited company, it is necessary to follow the Companies Act, 2013 and the applicable laws. When a Private Limited Company is registered, its Memorandum of Association (MOA) specifies the company's authorized and paid-up capital. The company is thus able to issue additional shares up to the amount specified in the MOA. An amendment to the MOA is required if the company desires to issue more shares.
Authorized Share Capital : It is called Authorized Share Capital or Authorized Capital, and it is the maximum amount of share capital that can be issued to shareholders. It may be modified with shareholder consent but varies from company to company. We imagine a business with a one lakh rupee authorized capital. Shares of the company are allowed to be issued for up to one lakh rupees. Because of its variable nature, permitted capital can be increased or decreased as needed. Imagine an investor wishes to contribute Rs. 1 crore to a company with an approved capital of Rs. 1 lakh. This allows the company to increase its authorized capital to Rs. 1 crore. “Capital approved” is the maximum amount allowed by the company's memorandum of association as the company's share capital under Section 2(8) of the Companies Act, 2013. Up to the permitted capital limit. investing more cash in the company's operation if its operation needs to be developed.
Authentified Share Capital's Purpose : New shares can be issued by directors only subject to restrictions, which may affect the company's control. In addition, it controls profit distribution. As a safety net, a small amount is set aside as approved capital if additional funding is needed.
Capital Increase Benefits : Increasing authorized share capital has the following benefits : ●
Raises company capital: The MoA will be updated to reflect any changes in amount of authorized capital. The effect of raising authorized capital is cumulative on the entire share capital.
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An increase in share capital increases the company's borrowing capacity. further increasing the company's borrowing capacity.
The possibility of accommodating it if sufficient approved capital is available may entice investment.
An Increase in Authorized Share Capital : Companies may need to increase their authorized share capital before issuing additional equity shares or raising paid-up capital. An authorized share capital is the total value of all the shares a company can issue. The paid-up capital of a company is its whole issued share value. A company's paid-up capital does not exceed its permitted capital. The company can induct additional shareholders if it has an authorized capital of Rs.10 lakh and a paid-up capital of Rs.10 lakh by: ● ●
Share issuance and increase in share capital (or) New shareholders receive shares from current owners.
When additional shares are issued, the permitted capital increases. Get in touch with our consultants at Legal Window for help expanding the authorized capital.
How to increase the company's authorized share capital : Sections 61 and 13 and 14 of the Companies Act, 2013, impose limitations and restrictions on the raising of the company's authorized share capital.
AOA of the company : Verify whether the increase is included in the AOA before raising the authorized share capital. This provision must be included in the AOA if not already present. AOAs commonly include provision for expanding the company's authorized share capital.
Board of Directors meeting : Board meetings are required to increase the company's authorized share capital. At the board meeting, the board must approve the expansion of authorized share capital. To raise the company's authorized share capital and modify its Memorandum of Association. Submit the notice of the Extraordinary General Meeting to shareholders after getting consent from the Board of Directors and the company secretary present. Based on the approval, all shareholders, directors, and auditors should receive a notice of the extraordinary general meeting.
AGM Extraordinary : Shareholders must approve the increase in the authorized share capital at the extraordinary general meeting at the time, date, and location specified. Ordinary resolutions must be passed by shareholders.
Forms for ROC must be completed : Form SH7 must be filed within 30 days after the ordinary resolution is passed at the extraordinary general meeting. You must pay the government charge and submit the following documents. ● ● ●
The EGM notice The author's signature on the ordinary resolution. The amended Memorandum of Association (which shows a higher authorized capital)
The registrar will approve the filing and raise the company's authorized share capital if the procedure outlined in the Companies Act and the Companies Rules is followed. Increased authorized share capital will be reflected on the MCA portal.
Allotted shares :
After increasing the company's authorized share capital in accordance with the company's charter, it is possible to increase the company's paid-up share capital by issuing new equity shares.
Conclusion : Share capital plays a significant role in a limited company. An organization with a share capital can generate funds, decide ownership, and transfer ownership among its members.