Increase Authorized Capital

To maintain a firm, each company need more cash over time. These money may be needed in the long and near term. Loans and advances might be used to meet a short-term requirement. However, the firm will require more money for the run. This may be accomplished for a Private Limited Company by raising the company’s authorised capital. Because the private limited company is governed and regulated by the Company Act, it is required to obey the Act and the regulations mentioned in order to make modifications to the structure.

The authorised and paid-up capital of a Private Limited Company is defined in the company’s Memorandum of Association (MOA) when it is registered. As a result, the firm can issue additional shares up to the authorised capital specified in the MOA. If the business intends to issue more shares than the stipulated maximum, changes to the MOA must be made.

What is the definition of authorised capital?

“Approved Capital,” as defined by Section 2 (8) of the Companies Act of 2013, is the capital that is authorised by the company’s memorandum to be the maximum amount of the company’s share capital.

The corporation can grow its operations up to the approved capital limit. If the firm needs to develop its operation by injecting more cash than initially, it must increase its permitted capital by following the processes outlined in this article.

Increase in Authorized Share Capital

may need to enhance its authorised share capital. The entire value of the shares a business can issue is known as authorised share capital. The whole value of the company’s issued shares is known as the paid-up capital.

The permitted capital is not exceeded by the paid-up capital. As a result, if the business has an authorised capital of Rs.10 lakh and a paid-up capital of Rs.10 lakh, it can induct additional shareholders by:

  • Increasing the authorised share capital and issuing new shares (or) transferring existing shares to new shareholders
How may the company's authorised share capital be increased?

Check the company’s AOA.

Before beginning the steps for raising the authorized share capital, check the AOA to confirm that the increase of the authorized share capital is included in the Articles of Association. If such a provision does not exist, the firm must first make revisions to its AOA.

Note that most AOAs include a mechanism for raising the company’s authorized share capital.

Call a meeting of the board of directors.

To increase the company’s authorized share capital, a Board meeting must be called by giving notice to the directors. Obtaining approval from the Board of Directors for raising the authorized share capital is required at the Board meeting.

Following this procedure, a date should be set for an Extraordinary General Meeting to gain shareholder approval for raising the authorized share capital and making modifications to the Company’s Memorandum of Association.

General Meeting Extra-Ordinary

Organize an extraordinary general meeting and get shareholder approval to increase the authorized share capital at the time, date, and location specified in the notification.

An ordinary resolution must be passed by the shareholders to approve the increase in authorized capital.

Fill out the ROC Forms

After the ordinary resolution is passed at the Extraordinary general meeting, the firm must file Form SH7 within 30 days of the ordinary resolution being passed. The required government charge for the permitted capital must be paid, as well as the papers listed below.

  1. The following is a notice relating to the Extraordinary General Meeting.
  2. True copy of the regular resolution that has been authorized
  3. The Association’s Memorandum of Association has been updated (Which depicts the higher authorized capital)

If the procedure outlined in the Companies Act and the Companies Rules is followed to increase the company’s authorized capital, the registrar will approve the filing and raise the company’s authorized share capital. The MCA webpage will reflect the increased authorized share capital.

Shares are distributed.

The company’s paid-up share capital can be increased by issuing new equity shares after the authorized share capital has been increased.

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