A company may need to increase its authorised share capital before issuing new equity shares and increasing paid-up capital. Authorised share capital is the total value of shares a company can issue, while paid-up capital is the total value of shares the company has issued. Paid-up capital can never exceed authorised capital. Hence, if a company having an authorised capital of Rs.10 lakhs and paid-up capital of Rs.10 lakhs would like to induct new shareholders, it can do so either by:
1. Increasing authorised share capital and issuing new shares. (or)
2. Transferring shares from existing shareholders to the new shareholders.
In most cases, new shares are issued and authorised capital is increased.
Get in touch with an estartupindia Advisor at firstname.lastname@example.org for assistance with increasing authorised share capital.
Before commencing the procedures for increasing authorised share capital, verify the AOA to ensure there is enabling provision in the Articles of Association (AOA) particularly with reference to increase authorized share capital. If there are no provisions for increasing authorised share capital, the company must first make changes to the AOA of the company.
Note: Most of the AOA's will have enabling provisions for increasing authorised share capital
To increase the authorised share capital, first, convene a Board Meeting by providing notice to the Director. At the Board Meeting, obtain approval from the Board of Directors for increasing authorised share capital. Then fix a date, time and place for conducting an 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.
Finally, obtain approval of the Board of Directors of Company Secretary present at the meeting to present notice of Extra-Ordinary General Meeting to the shareholders. Based on the approval, present the Notice of Extra-Ordinary General Meeting to all shareholders, Directors and Auditor of the Company.
On the time, date and place mentioned on the Notice of Extra-Ordinary General Meeting, conduct the Extra-Ordinary General Meeting and obtain shareholders approval for increase of authorised capital. The approval of shareholders for increasing authorised share capital must be in the form of an ordinary resolution.
Once the ordinary resolution is passed at the Extra-Ordinary General Meeting, Form SH-7 must be filed by the company within 30 days of passing of ordinary resolution. Along with Form SH-7, the prescribed government fee for authorised capital must be paid and the following documents must be attached:
1. Notice related to EGM.
2. Authorized True copy of Ordinary Resolution.
3. Changed Memorandum of Association. (Showing higher authorised capital)
If the procedures for increasing authorised capital are followed as mentioned in the Companies Act and Companies Rules, then the Registrar would approve the filing and increase the authorised share capital of the company. The new authorised share capital of the company would be reflected on the MCA portal.
Post the increase in authorised share capital, the paid-up share capital of the company can be increased by issuing fresh equity shares.