Updated : September 02, 2024Increase Authorized Capital
Overview : The share capital of a company can be increased by the issuance of new shares of the company. In the adverse situation of uncertain or lower cash flow in companies, increasing authorised capital can play a crucial role. Increase in equity simply means raising money for start-up companies and growing businesses. The blog elaborates the procedure for ‘Increasing Authorised Capital of a Company’ in India.
In the scenario of uncertain cash flow, which is undeniably the most common limitation of many new companies, Equity increase plays a significant role. Increase in equity raises money for the start-up companies and growing businesses. The share capital of a company can be increased by issuing new shares.
The best part about equity increase or equity financing is that there is no fixed obligation to pay dividends. Apart from this, it allows the company to share risks and liabilities of company ownership with the new investors. Equity Increase further allows the company to grow or diversify into other areas.
Minimum Authorised Share Capital Requirement for Various Companies
- Rs. 1 Lakh for OPC
- Rs. 1 Lakh for Private Limited Company
- Rs. 5 Lakh for Public Limited Company
- Not applicable in case of LLP
Procedure of Increasing Authorised Capital of a Company
Step 1: The first step of increasing authorised capital in a company involves checking and assuring that Articles of Association of the company contains a provision which allows the company to raise its authorised capital. According to Section 61 of the Companies Act, 2013, authorization in Articles of Association is a prerequisite in order to increase the Authorised capital of the company.
In case, there is no such provision then the company has to insert the clause allowing increase in the Authorised share capital of the Company by alteration of its Articles of Association as per the provision of Section 14 of the Companies Act, 2013.
Step 2: The second step of increasing authorised capital is to call a Board meeting. The notice for the meeting is to be issued as per the provisions of section 173(3) of the Companies Act, 2013.
Calling a board meeting must include getting consent from directors for increase in authorised capital, setting the appropriate date, time and venue for holding an extraordinary general meeting to get the approval of shareholders for the amendment in Memorandum of Association, giving consent to the notice of extraordinary general meeting followed by the agenda and explanatory statements, permitting the Director or Company Secretary to give the notice for an extraordinary general meeting.
Step 3: In this same direction, the next step to increase Authorised Capital consists of issuing or informing about the notice of the extraordinary general meeting to the Directors, Members and Auditors of the company according to the provisions of Section 101 of the Companies Act, 2013.
Step 4: This step involves holding an extraordinary general meeting on or before the due date and passing the significant ordinary resolution under section 61(1)(a) of the Companies Act, 2013.
Step 5: In this step, the process of ROC form filing is initiated. The form SH-7 is to be filed within 30 days of the passing of ordinary resolution with the related Registrar of Companies. It has to be filed along with the prescribed fees. Apart from this, section 64 mandates that some supporting documents have also to be attached which include notice of EGM, certified original copy of ordinary resolution and amended Memorandum of Association.
Step 6: In this step, the concerned registrar runs the checking process of eForms and attached documents to approve the increase in authorised share capital, if everything is found valid during the checking process.
The step also involves issuing notice for the changed share capital to the Registrar. Filing a notice in the prescribed form with the Registrar is to be done within 30 days of increase, if it changes its share capital for increase in authorised share capital. It has to be filed along with a copy of altered Memorandum and has to be done as per the sub-section (1) of section 61.
It is important to know that no special resolution needs to be passed in order to increase the authorised capital. Alteration in Memorandum of Association is only required if there is an amendment in the specific clause of MOA as directed in Section 13. Moreover, amendment in capital clause of MOA to increase the authorised capital is governed by Section 61 of the Companies Act, 2013. On the other side, section 61 is silent regarding the nature of the shareholders’ resolution.
Conclusion
Increasing authorised share capital enables a company to expand its limit to issue more shares that can help raise funds from existing or new shareholders. This process aids in fostering business expansion or meeting evolving market requirements. The aforementioned process of Increasing Authorised Capital in a company certainly would be helpful in raising capital for your startup company to overcome its financial barriers and thrive well.
