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An Authorised share capital determines the maximum number of shares a private business can
issue.
According to the 2013 New Companies Act,
there is no minimum capital increase requirement. The capital clause of the Memorandum of
Association is updated by the board approving an ordinary resolution in order to issue
additional shares or increase the authorized share capital.
This sum of increase in share capital varies from business to business and could alter, but only
with the consent of shareholders.
Let's say a firm has an authorised capital of ₹2 lakhs; in that case, it follows that it can
issue shares for up to ₹2 lakhs. However, because it is flexible, this allowed capital may be
increased or decreased as needed.
Let's imagine a firm has ₹1 lakh in allowed capital, but an investor wishes to put in ₹1 crore.
In this case, the company can raise its authorised capital to ₹1 crore. The permitted share
capital increase for company registration is covered here.
Here are the few guidelines one must know about increase authorised capital:
₹5 lakhs for including the phrases Hindustan, Bharat, and India in the company name.
₹10 lakhs for the use of the phrases
'Enterprise', 'Products', 'Business', and 'Manufacturing' in the company name.
₹10 lakhs for the use of the phrases
'Enterprise', 'Products', 'Business', and 'Manufacturing' in the company name.
₹50 lakhs for the use of the phrases global,
intercontinental, continental, Asian, and international in the company's name.
Bharat, Hindustan, and India were paid ₹50
lakhs to be the first word in the firm name.
For employing words like 'international',
'global', 'universal', 'continental', 'intercontinental', 'asiatic', and 'industry'
anywhere in the firm name, as well as 'udhyog' and 'industry', the fine is ₹1 crore.
₹ 5 Crore if the company name contains the
word 'Corporation' even once.
A firm may only raise money from the public up to its share capital increase.
You must raise your company's increase authorised capital in order to raise money from
the public.
The documents must be filed with the MCA within 30 days after obtaining consent from the
shareholders for the share capital increase. The standard resolution for private firms
is merely SH-7, and MGT-14 is not required.
Digital signature certificate Online: A copy of a DSC from any authorised director of
the company
Memorandum of Association: A copy of the modified or latest version of the MoA
Articles of Association: A copy of the modified or latest version of the AoA
Certificate of incorporation: A copy of the company’s incorporation certificate
PAN card: A copy of the company’s PAN card.
Check the provisions of the AOA to increase authorised share capital
If the AoA does not permit an increase, then the AoA must be modified as per Section 14
of the Companies Act of 2013
Issue a notice for calling a board meeting to modify the AoA in order to approve the
increase in authorised share capital
Issue a notice for calling an extraordinary general meeting to modify the AOA in order
to approve the increase in share capital
Issue the notice at least 7 days before the board meeting and 21 days before the EGM.
There are four main types of capital in a company:
Equity capital: This is the money that is invested in the company by the shareholders.
It is the most important type of capital for a company, as it provides the company with
the funds it needs to operate and grow
Debt capital: This is the money that the
company borrows from lenders, such as banks. Debt capital is usually repaid with
interest over a period of time.
Working capital: This is the money that is
used to finance the day-to-day operations of the company, such as paying for wages,
rent, and supplies. A combination of equity capital and debt capital usually funds
working capital.
Trading capital: This is the money that is
used to buy and sell goods or services. Trading capital is usually funded by debt
capital.
The amount of each type of capital that a company needs will vary depending on the size
and stage of the company. For example, a startup company will typically need more equity
capital than a mature company.
The following are some of the key differences
between the four types of capital:
Equity capital: Equity capital is a
permanent source of financing for a company. It does not have to be repaid, and the
shareholders do not have to pay interest on it. However, the shareholders are the last
to get their money back if the company goes bankrupt.
Debt capital: Debt capital is a temporary
source of financing for a company. It has to be repaid, and the lenders charge interest
on it. However, the lenders have a lower priority than the shareholders if the company
goes bankrupt.
Working capital: Working capital is a
revolving source of financing for a company. It is used to finance the day-to-day
operations of the company, and it is constantly being replenished.
Trading capital: Trading capital is a
revolving source of financing for a company. It is used to buy and sell goods or
services, and it is constantly being replenished.
A company's capital structure is the mix of
equity capital, debt capital, working capital, and trading capital that the company uses
to finance its operations. The capital structure of a company will vary depending on the
company's financial situation, its risk appetite, and its strategic goals.
The following documents are needed for removal of director
Notice of Board Meeting: The first step in the removal of a director is to hold a board
meeting and pass a resolution for the removal of the director. A notice of the board
meeting must be sent to all the directors of the company, and the resolution must be
passed with a majority vote
Special Notice to Director: A special notice
must be sent to the director who is being removed. This notice should contain the
reasons for the removal of the director, along with a copy of the board resolution
Resignation Letter: If the director being
removed wishes to resign voluntarily, a resignation letter should be obtained and filed
with the MCA
Form DIR-12: Form DIR-12 is the form used to
file the details of the removal of the director with the MCA. This form must be filed
within 30 days of the removal of the director
Board Resolution: Certified resolution
passed in favour of the director removal should be prepared and file directly with the
MCA
Declaration by Director: A declaration must
be obtained from the director being removed stating that they have no objection to the
removal.
In the case of a private limited company, the procedure for increasing the authorised
share capital is According to Section 61 of the Companies Act of 2013, a limited company
with a share capital may change the capital clause in its Memorandum of Association
(MoA) by making an ordinary resolution in a general meeting, provided that its Articles
of Association (AoA) grant the firm permission to do so. Within 30 days, a notice of
alteration must be submitted in Form No. SH-7 to the ROC.
Only when specifically permitted by its
articles of association and following member approval by a regular resolution passed at
an extraordinary general meeting of the business is a corporation permitted to expand
its authorised share capital.
Check the Articles of Association: The first step in increasing authorised share capital
of a company is to check the AOA. It will outline the process for increasing the
authorised share capital, including any limitations or restrictions that may apply.
Convene a Board Meeting: The proposal to raise the increase authorised share must be
discussed and approved by the company's board of directors, who must call a meeting. To
raise the authorised share capital, the board must adopt a resolution outlining the
increase's dollar value.
Call for an Extraordinary General Meeting (EGM): Once the board has approved the
increase in authorised share capital, the company must call for an Extraordinary General
Meeting (EGM) of the shareholders. All shareholders must receive notice of the EGM at
least 21 days prior to the meeting.
Pass a Special Resolution: At the EGM, the shareholders must pass a special resolution
to approve the increase in authorised share capital. A special resolution needs the
support of at least 75% of shareholders in order to pass.
File the Resolution with the Registrar of Companies: After the special resolution has
been passed, the company must file the resolution with the registrar of companies within
30 days. A certificate of registration of the resolution will thereafter be issued by
the registrar of companies.
Issue New Shares: Once the share capital increased, the company can issue new shares to
its shareholders. The company must follow the process outlined in the articles of
association for issuing new shares, including any restrictions or limitations that may
apply.
Below are the steps on procedure for increase in authorised share capital
Step 1: Board Resolution Prior to deciding whether or not to increase the authorised share capital, the company must first hold a board meeting to review and discuss the authority provided under the company's articles of association (AOA). If not, amend the AOA and hold a general meeting to discuss raising the authorised capital.
Step 2: Ordinary Resolution for an Increase in Authorised Capital The Company will hold a general meeting of the members and adopt a regular resolution for an increase in the company's authorised capital and any necessary amendments to the memorandum of association at said meeting.
Step 3: Submitting the Required Paperwork Following the passage of the Ordinary Resolution increasing the business's authorised capital, the company will file Forms MGT-14 for filing resolutions and Form
Step 4: The ROC approval The Registrar of Companies will process the forms and approve the increase in authorised capital after receiving the Forms of Increase in Authorised Share Capital of the Company and verifying that it is pleased with the forms filed and compliance made. The company's master data will be updated on the MCA portal as soon as the form has been approved.
Verify whether the company's AOA has given the go-ahead to increase the authorised
capital. If AOA is not permitted, a Special Resolution must be passed in order to change
AOA
Hold a board meeting to establish the day, date, time, and location of the extraordinary
general meeting as well as to enhance the company's authorised capital. Give notice of
the meeting's day, date, time, location, and agenda to each member/shareholder,
director, and auditor of the company
Convene, hold, and conduct the EGM at the time and location stated, and adopt a
resolution to seek shareholder approval. If applicable, submit the required form within
the timeframe
Change the company's Memorandum of Association to increase the permitted share capital
If the shareholders' resolution is approved, you have 30 days to file form SH-7 with the
Registrar of Companies. Additionally, if the resolution is passed as a Special
Resolution, form MGT-14 must be filed within 30 days after the resolution's passage.
What can be the reasons for increase in authorised share capital of the company? There
could be various reasons for a company needing to increase the authorised capital. Let
us see a few:
The need for enormous funds
Financing the company's new projects
Merger of two enterprises and their cash infusion as part of an arrangement strategy
Additional share capital issuance
Debt is converted to equity capital.
To fulfil the legal requirements
As per the Companies Act, 2013, an increase in authorised share capital requires a
special resolution passed by the shareholders of the company.
A special resolution is a resolution that is passed by at least 3/4th majority of the
shareholders present and voting at a general meeting of the company.
However, the AOA of the company may prescribe a higher majority or additional
requirements for passing a special resolution. Hence, it is important to review the
company's AOA before passing a resolution to increase authorised share capital.
The rules for increasing authorised share capital of a company are as follows:
Check the Articles of Association (AOA): Before increasing authorised share capital, the company should review its AOA to ensure that the procedure and requirements for passing a special resolution are met
Conduct a Board Meeting: The board of directors of the company should convene a meeting to approve the proposal to increase authorised share capital
Pass a Special Resolution: The shareholders of the company should pass a special resolution approving the increase in authorised share capital. The resolution should be filed with the Registrar of Companies (ROC) within 30 days of its passing
Obtain Approval from ROC: The company should file the necessary documents with the ROC, including the special resolution and a copy of the altered AOA to obtain approval for the increase in authorised share capital
Issue New Shares: Once the increase in authorised share capital is approved, the company can issue new shares to raise additional funds.
The maximum number of shares that a corporation is permitted to issue to its shareholders is known as the authorised share capital.
The MOA contains a reference to the authorised share capital, which is decided upon when the company is incorporated.
The authorised share capital can be determined based on various factors such as the company's future growth plans, capital requirements, and financial projections. x
The company's promoters and directors decide the authorised share capital based on their estimation of the company's future capital needs.
Subsequently the authorised share capital may be raised by passing a special resolution and submitting the required paperwork to the ROC.
The corporation can now issue more shares to its shareholders in order to raise more money thanks to the increase in authorised share capital.
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