How to increase authorized share capital of a company

Authorized share capital, also known as nominal capital, is the maximum amount of capital a company is legally permitted to raise through the issuance of shares. This capital is stated in the company's Memorandum of Association (MoA) and can only be increased by following a specific procedure outlined under the Companies Act, 2013.

For companies seeking to increase their Authorized share capital, it is important to follow a well-defined legal process. The role of a practising company secretary, particularly in cities like Coimbatore, becomes crucial in ensuring the process is carried out smoothly and in compliance with all applicable regulations.

Why Increase Authorized Share Capital?

Before delving into the procedure, let’s first understand the reasons a company might need to increase its Authorized share capital:

1. Business Expansion: A growing company might need additional capital to finance new projects, infrastructure, or geographical expansion.
2. Attracting New Investors: Companies planning to bring in new shareholders or investors will need to issue more shares, which may require increasing the Authorized share capital.
3. Debt Management: Companies often convert their debt into equity to avoid high interest rates, requiring them to issue additional shares.

In each of these scenarios, having a practising company secretary in Coimbatore on board, particularly one experienced in handling such matters in Coimbatore, can streamline the process.

Key Terms to Understand

Before proceeding with the formalities, it’s crucial to understand the key terminologies:

Authorized Capital: The maximum amount of capital a company is allowed to raise by issuing shares, as specified in the Memorandum of Association (MoA).

Paid-Up Capital: The portion of the Authorized capital that has already been issued and paid for by the shareholders.

Issued Capital: The portion of share capital that has been offered to shareholders for subscription.

Legal Provisions under the Companies Act, 2013

The process of increasing the Authorized share capital is governed by Section 61 of the Companies Act, 2013. As per this section, a company may increase its Authorized capital only if its Articles of Association (AoA) permit it. If the AoA does not provide for such an increase, it must first be amended before proceeding.

Step-by-Step Process to Increase Authorized Share Capital

Outlined below is the detailed process for increasing a company’s Authorized share capital in accordance with the Companies Act, 2013:

1. Review the Articles of Association (AoA)

Before proceeding with any steps, it is crucial to check the company’s AoA. If the AoA lacks a provision for increasing Authorized share capital, the company must first amend the AoA by passing a special resolution at a general meeting.

Role of a Practising Company Secretary:

A practising company secretary can help the company review the AoA and prepare the required documents for its amendment.

2. Convene a Board Meeting

Once the AoA permits an increase in Authorized capital, the next step is to convene a board meeting to discuss the proposal.

• Draft a Board Resolution: The company must pass a board resolution to approve the increase in share capital and call for an extraordinary general meeting (EGM) of shareholders to pass the necessary resolution.
• Set the EGM Date: The date, time, and venue for the EGM should be decided.

Role of a Practising Company Secretary in Coimbatore:

A practising company secretary can help prepare the board resolution and draft the notice for the EGM.

3. Issue a Notice for the EGM

The notice for the EGM must be sent to all shareholders at least 21 days prior to the meeting. The notice should include:

• The meeting agenda, which includes discussing and passing the resolution to increase the Authorized share capital.
• The explanatory statement, as mandated by Section 102 of the Companies Act, 2013.

Role of a Practising Company Secretary:

A practising company secretary can help draft and circulate the notice and explanatory statement in compliance with the Companies Act.

4. Hold the EGM

During the EGM, the shareholders will discuss the proposal and, if agreed upon, pass an ordinary resolution to increase the Authorized share capital.

Ordinary Resolution: The resolution must be approved by a simple majority of the shareholders present and voting during the meeting.

File Form SH-7 with the Registrar of Companies (RoC).

After the resolution is passed in the EGM, the company must file Form SH-7 with the RoC within 30 days from the date of passing the resolution.

• Documents Required:
• Copy of the board resolution.
• Submit a Copy of the ordinary resolution passed in the EGM.
• Altered MoA (if applicable).
• Filing Fees: The fees for submitting Form SH-7 vary based on the amount of the increased Authorized share capital.

The importance and role of a Practising Company Secretary in Coimbatore

A practising company secretary in Coimbatore can help ensure that the form is filed within the stipulated time frame and that all necessary documents are in order.

6. Alter the Memorandum of Association (MoA)

If the increase in Authorized share capital requires an amendment to the MoA, the altered MoA should be submitted to the RoC as part of Form SH-7.

Post-Increase Compliance

Once the Authorized share capital has been increased, the company should comply with the following:

1. Updating Statutory Registers: The Company must update its Register of Members, Register of Shares, and other statutory registers.
2. Share Certificates: If new shares are issued as part of the increase in Authorized capital, share certificates must be provided to the shareholders.

Conclusion

Increasing the Authorized share capital of a company is a vital step for businesses looking to expand or raise additional funds. Although the process is relatively simple, it demands meticulous attention to detail and adherence to the provisions of the Companies Act, 2013.Engaging the services of a practising company secretary in Coimbatore can simplify the process and ensure that all legal and procedural requirements are met. Whether a company is looking to attract new investors, expand its operations, or convert debt into equity, increasing Authorized share capital is a critical step toward achieving these goals.

CS sivasankar & co as a team of experienced professionals, we offer a full range of services designed to help our clients excel in meeting statutory compliance requirements.