Increase in Authorized Share Capital FY 2020 Onwards

Increase in Authorized Share Capital – Businesses need funds to run their business. The fund requirement may be short term or long term on need basis. Short term fund requirement may be met by loans and advances and long-term fund requirement may be met by either loans and advances or raising capital of the business. To raise additional capital in private limited companies, one has to make sure to comply with rules and regulations as laid in Companies Act, 2013.

While registering a company, Authorized capital and paid-up capital is mentioned in MOA. If company wishes to issue more shares than authorized than alteration in MOA has to be done which can be done after certain compliances. This article is a detail guide over those compliances.

What is Authorized Capital?

Authorized capital is defined in Sec 2(8) of the Companies Act, 2013. It means maximum amount of capital which is authorized by MOA. Company can issue shares to the extent of authorized capital.

In case if company wishes to expand business and raise capital more than authorized capital than same has to be done by making amendment in MOA.

Increase in Authorized Share Capital

Company before issuing shared should keep check on authorized share capital. Paid up capital can never exceed authorized share capital.  Authorized share Capital is total values of shares which a company can issue.

For E.g.: If company authorized and paid-up share capital is same and additional shareholders have to be introduced. What will company do?

In such cases company has 2 options:

• Increase authorized share capital and issue new shares
• Transfer shared from existing shareholder to the new shareholder.

Which option to be selected will required a company to seek external consultancy as each option will have different cost involved and different financial impact.

How to Increase in Authorized Share Capital of the company?

1. Verify AOA of the Company – First Step is to check whether AOA of the company authorizes increase in authorized share capital. If AOA does not permits then amend AOA of the company. However, in majority cases AOA have this clause for increase of authorized share capital of the company.
2. Convene a Board Meeting – A board meeting will be convened after issuing notice of meeting of not less than 7days specifying the agenda of the meeting to increase authorized share capital. Once ordinary resolution is passed approving the increase. Board will set date for Extra ordinary general meeting (EGM). Post board approval, Shareholder meeting i.e., Extra ordinary general meeting will be convened after issuing notice of meeting of not less than 21 days specifying the agenda of the meeting to increase authorized share capital.
3. Extra-Ordinary General Meeting – EGM will be convened and approval of share holders will be obtained. Please note ordinary resolution will be passed for making amendments in MOA.
4. File ROC Forms – ROC form with instruction kit can be downloaded from https://www.mca.gov.in/MinistryV2/companyformsdownload.html
   • First MGT-14 (Filing of Resolutions and agreements to the Registrar) will be filed with ROC
   • Form SH7 (Notice to registrar of any alteration of share capital) has to filed with ROC within 30days from the date of passing ordinary resolution.
5. Allotment of Shares – Post increase of authorized share capital, additional shares can be issued and Paid up capital is increased. ROC form PAS-3 (Return of allotment) should be filed with registrar.

Documents required for Increase in Authorized Share Capital of company

• Notice of EGM
• Amended Memorandum of associate (MOA) with increased authorized capital
• Certified true copy of resolutions passed at meeting
• Allotment List
• ROC Fees for relevant forms

For consultancy of Increase in Authorized Share Capital of company

Reach out to our professionals at Tax Ledger Advisor for consultancy of Increase in Authorized Share Capital of company.

Also refer other articles from Tax Ledger Advisor >>

https://www.taxledgeradvisor.com/company-registration/

https://www.taxledgeradvisor.com/annual-compliances-for-private-limited-companies/