How to increase authorized share capital of my company?
There are number of aspects that needs to be considered while starting the company in India like the kind of company, number of members, capital contribution by each member, rights, liabilities etc. One such very important decision that needs to be taken is of the amount of authorized share capital. It is important to ascertain the amount of share capital that the business entities desire to keep at the beginning stage and the extent to which they would like to increase their capital. Today with this blog we will try to understand the meaning of authorised capital and the procedure by which it can be increased.
What is the authorized share capital?
Share capital is that part of company’s equity that is raised by the issuing the shares/stock of the company to stakeholder in exchange of the cash. Within the meaning of share capital the authorized share capital is the maximum amount of capital that the company is authorized to issue to public. The share capital cannot be issued beyond the limit of authorized share capital. The limit is put on the amount of share capital so as to ensure that the shares are not issued arbitrarily by company and there is a systematic regulation of financial market.
How to increase the Authorized share capital of the company?
According to Companies Act 2013 any company desiring to raise their authorized capital is required to follow a specific procedure and then only it will be able to do so. Below is the step by step procedure that needs to be followed for increasing the authorized share capital of the company-
- Checking the Article of Association- Once the decision regarding increment of authorized capital is taken first thing that needs to be checked is the Article of association. Article of Association is one of the most important documents containing the rules and regulations according which the company deals with outsiders. The presence of the provision for increasing the authorized capital must be there in order to increase the capital. In case it is not there then it is mandatory to alter the article of association.
- Conducting the Board of Meeting – In order to increase the authorized share capital a board meeting must be convened in an orderly manner by giving the proper notice to them. At the board meeting conducted a date, time, place for conducting the extra-ordinary general meeting to obtain approval of shareholders for the increase of authorised share capital and making changes to the MOA of the company.
- Extra Ordinary general meeting – Being in line with the decision made at the board meeting an extra ordinary general meeting must be conducted at the exact, date, time and place which was decided in the board meeting. The matter of conducted increasing the authorized share capital is kept set out and the ordinary resolution regarding the same must be passed for the increase in the authorised share capital.
- Filing the relevant forms with ROC- Once the ordinary resolution is successfully passed it is mandatory that within 30 days passing the resolution the FORM SH 7 must be filed with the Registrar of Companies intimating them about the change in the authorized capital along with the requisite fees and attachment. Along with the form SH 7 the important documents like the notice of extra- ordinary meeting, Authorized copy of ordinary resolution passed at the meeting and the altered memorandum of association reflecting the change.
- Once all the above mentioned steps are followed the procedure of altering the authorized share capital will be complete.