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INCREASED AUTHORISED CAPITAL
What is Authorized share capital?
Total shares a company can issue are known as Authorized Share Capital, whereas the total value of shares that the company has already issued to its shareholders is known as paid-up capital. The paid-up capital will always be less or equal to the authorized share capital. This means that the company can raise capital only to up to authorized capital which is mentioned by the company. However, if a company wants to increase the share capital capacity they would have to pay additional fees and file a stamp duty. The capital clause mentioned in the MoA would also need to be altered to change the authorized share capital. For all this, the company would need to arrange a meeting of the Board of Members and pass a resolution and submit it to MCA.
To increase authorized capital, the following things would need to be taken care of :
1) Verify AOA
2) Conduct Board Meeting and later EGM.
3) Filing of ROC forms.
4) Alloting shares.
Verify AOA
Before starting the process of increasing the share capital you would need to verify AOA, if they have mentioned any provision in the AOA. If there is no provision mentioned in the AOA then the company would have to alter the AOA first.
Conduct Board Meeting and EGM
Change your share capital if you have verified AOA. Then, you need to set up a meeting of board members to put forth the changes you are planning to introduce in shares. You would have to obtain approval from the board of directors. Further, you would have to set a date, time and place for conducting an EGM. In extraordinary general meeting you would have to obtain shareholders' approval. The approval thus obtained for increasing share capital should be an ordinary resolution.
Filing of ROC forms.
After filing the resolution, the company must file Form SH-7 within 30 days of passing resolution. Along with Form SH-7, you would have to attach the notice which is related to EGM, resolution passed at EGM, Changed MOA and the prescribed fees. If the Registrar finds everything acceptable then registrar would approve the filing and increase the share capital. Moreover, the company's newly authorized share capital will be reflected on MCA portal.
Allotting shares.
Once your authorized shares are increased, you can issue new equity shares to shareholders.
Advantages
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Banks prefer to give loans depending on the authorized capital. The ideal debt equity ratio is 2:1. If you increase the authorized capital, you will get the loans in the above proportion. But you need to incur certain costs at the ROC to increase the share capital.
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Also, by raising funds through the use of share capital, you’re not bound by any usage restrictions or stipulations. As such, the money that you receive from investors can be made to support anything from key growth projects, innovation, research and development or purchasing equipment to moving into new premises.
Disadvantages
When a business sells shares to raise equity, it is effectively reducing its control and ownership over the company. Every share is a tiny piece of ownership in that company and so has benefits for the shareholder.
FAQs Section
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Your authorized share capital and the paid-up capital both would be reflected in the master data of company in the MCA portal.
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For increasing the authorized share capital you would require consent from the following group of peoples:
Consent from the Board members in general meeting.
Consent from the share members of the company in EGM.
Approval from RoC.
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The resolution passed should be file along with Form MGT-14 and notice of increase has to be filed with SH-7 with altered MoA and AoA.
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To total shares a company can issue is known as Authorised share capital.
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The total value of the share that the company has already issued to its shareholders is known as paid-up capital.
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No, authorized capital is always greater than paid-up capital.
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