Authorized Share Capital Change of a Company

A company may require augmenting its authorised share capital before issuing new equity shares and enhancing paid-up capital. Authorised share capital denotes the total value of shares that a company can issue, while paid-up capital is the total worth of shares the company has issued. Paid-up capital cannot go above authorised capital. Therefore, if a company possesses an authorised capital of Rs 10 lakhs and paid-up capital of Rs.10 lakhs can set up new shareholders. It can do so either by :

Adding authorised share capital and issuing new shares

or

Transferring shares from active shareholders to the new shareholders

In most scenarios, new shares are issued and authorised capital is enhanced. Under Companies Act, 2013, the procedure of Increase in Authorise Capital is administered by Section 61 read with section 13 and 64 of Companies Act, 2013.

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Process to enhance Authorized Share Capital

Authorisation in Article is compulsory – The Company requires making sure that its Articles of Association has a provision for authorising it to enhance its authorized share capital. Under Section 61 of the Companies Act, 2013 Authorization in Articles of Association is a pre-condition for increasing the Authorised share capital. If there is no such provision then the company must take steps to change its Articles of Association consistent with the provision of Section 14 of the Companies Act, 2013. It requires inserting the clause enabling raise in the Authorised share capital of the Company.

Calling of Board Meeting – Issuing notice consistent with the provisions of section 173(3) of the Companies Act, 2013, for arranging a meeting of the Board of Directors. Key agenda for the Board meeting is needed to be :

Acquiring approval of Directors to increase authorised share capital

Date, time and place for arranging Extra-ordinary General meeting (EGM) must be fixed to get approval of shareholders by means of Ordinary Resolution for alteration in authorised share Capital clause of Memorandum of Association. This alteration in authorised share Capital clause of Memorandum of Association should follow the requirement of section 61 of the Companies Act, 2013.

Under section 102(1) of the Companies Act, 2013, for approving notice of Extra-ordinary General meeting, agenda and explanatory statement should be annexed to the same.

Authorising the Director or Company Secretary to issue Notice of the Extra-ordinary General meeting (EGM), approved by the board under clause 2(c) stated above.

Issuing Notice of the Extra-ordinary General meeting (EGM) – A notice must be issued to all members, directors and the auditors of the company following the provisions of Section 101 of the Companies Act, 2013.

Hold General Meeting – Extra-ordinary General meeting (EGM) should be held on due date and pass the required Ordinary Resolution under section 61(1)(a) of the Companies Act, 2013, to enhance authorized share capital of the Company.

Registrar of Companies Form filing : Filing form SH-7 within 30 days of passing ordinary resolution with the associated Registrar of Companies, with recommended fees and following attachments as mentioned in section 64 :

Notice of EGM

Changed Memorandum of Association

Certified True copy of Ordinary Resolution

Associated Registrar of Companies (ROC) will verify the E-forms and attached documents. If he/ she becomes satisfied with then will approve the increase in authorize share capital.

Notice must be offered to Registrar to alter the share capital

According to section 64 of the Companies Act, 2013, where a company modifies its share capital to increase authorised share capital consistent with sub-section (1) of section 61, the company must file a notice in the recommended form with the Registrar within 30 days of such increase with a copy of modified Memorandum.