Company Authorized Capital Increase
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Company Authorized Capital Increase
Every business eventually needs more money to run, and short-term and long-term needs can be met by taking out loans and advances, but in the long run, the company will need more money, which can be achieved by increasing the authorized capital of a private limited company. Since the private limited company is governed and regulated under the Company Act, it is necessary to follow the Act and the rules stated.
Legal vedas make it simple to raise the authorized capital of your business. Our professionals ensure a hassle-free experience by guiding you through each stage.
Authorized capital: what is it?
Section 2(8) of the Companies Act 2013 defines "Authorized Capital" as the capital that the company's memorandum authorizes to be the maximum amount of the company's share capital.
The company is able to grow to the amount of authorized capital. The corporation must raise the authorized capital if it needs to grow its business and inject more money than it first did.
The total possible value of shares that a business may issue is known as authorized share capital. Paid-up capital, on the other hand, is the true worth of shares that shareholders have completely issued, subscribed for, and paid for. The company's paid-up capital cannot be greater than its authorized share capital. As a result, a corporation has two choices if its paid-up capital exceeds its authorized capital and it wants to accept additional shareholders:
Either issue additional shares after increasing its authorized share capital, or
Make it easier for existing shareholders to transfer their shares to new ones.
Raising the maximum amount of share capital that a business is legally allowed to distribute to its shareholders is known as an authorized share capital increase. Usually, a change to the business's Memorandum of Association (MOA) accomplishes this.
A business can raise money from current or potential shareholders by expanding its ability to issue more shares by raising the authorized share capital. This procedure is frequently used to assist new project financing, corporate development, or changing financial requirements.
The Memorandum of Association (MOA) of a Private Limited Company establishes the initial authorized and paid-up capital levels at the time of establishment. This establishes the highest amount of share capital that the business can distribute to its owners. If the firm wants to issue more shares in order to surpass this cap, the MOA must be amended to increase the authorized capital threshold, which will allow for the issuance of more shares than the initial cap.
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Reasons for Authorized Share Capital Growth
As previously said, a business may think about raising its authorized capital for a number of reasons, such as:
- Meeting important financial obligations.
- Providing capital for new business ventures.
- assisting with mergers and acquisitions and providing funding as a component of a restructuring plan.
- Issuing more shares
- Turning debt into equity
- Fulfilling any necessary regulatory requirements.
Documents Required
To formally increase authorized share capital, certain paperwork needs to be presented within 30 days of shareholder approval. While e-form MGT-14 submission is not necessary, private enterprises must submit the resolution using e-form SH-7. Make sure the following paperwork is ready for filing:
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The process for raising authorized share capital
The procedure entails a number of crucial actions to guarantee adherence to legal mandates and obtain shareholder consent for the suggested raise.
The Articles of Association (AoA) should be reviewed.
The company's governance, including capital management, is described in the AoA. First, find out if the AoA allows for modifications to the authorized capital.
- Verify for Provision: If the AoA contains a clause allowing for the modification of allowed capital, the procedure is simple. If not, the AoA must be changed.
- If necessary, change the AoA to add the possibility for approved capital alteration in accordance with Section 14 of the Companies Act of 2013 if there isn't a provision already in place.
- Proceed with Capital Modification: Once the AoA allows it, the company can officially adjust its authorized capital.
Calling an Authorized Capital Increase Board Meeting
- Notice for Board Meeting: Dispatch a notice detailing the meeting's agenda to all directors at least 7 days in advance to their registered addresses.
- Board Resolution: A resolution calling for an extraordinary general meeting (EGM) will be passed at the board meeting. In accordance with Section 60 of the Act, this entails presenting and requesting approval for the amended authorized capital clause in the Memorandum of Association by an Ordinary Resolution by means of a notice issued in accordance with Section 101 of the Companies Act.
- Notify shareholders of the specifics of the EGM, such as the agenda, date, time, and location. The voting procedure for resolution approval should also be described in the notice.
- Distribution of the EGM Notice: Make certain that the following individuals receive the notice: a)Directors b)Shareholders, c) Auditors.
- EGM Notice Period: The EGM notice must be sent out at least 21 days prior to the planned date. However, if at least 95% of voting-eligible members agree—which can be done electronically or in writing—a shorter notice time is acceptable.
The Extraordinary General Meeting for the Capital Increase is being held.
- The proposal to increase the authorized share capital is formally presented to the attendees during the EGM.
- Voting Procedure: Shareholders can vote on the proposed increase in accordance with the procedures described in the EGM announcement.
- Resolution Approval: After obtaining the required support by voting, the resolution to raise the authorized capital is formally passed.
- Documentation: To authorize the capital increase, an explanation of the resolution and its ramifications is created and added to the official records.
Authorized Capital Increase Regulatory Filings with ROC
Following the resolution, the business has 30 days to finish the following filings and pay the necessary fees:
Submission of Form MGT-14:
The Registrar of Companies (RoC) must receive this form within 30 days of the pertinent resolution being adopted.
Specifics Needed:
- Details about the business, such as the Corporate Identification Number (CIN).
- The filing's objective.
- dates of resolution passage and notice dispatch.
- Resolution details.
- Director identification numbers (DINs) and digital signatures are necessary.
Required Documents:
- Section 102: Notice of EGM with Explanatory Statement.
- A certified copy of the resolution from the EGM.
- Revised Memorandum of Association (MoA) to reflect the change to the Capital Clause.
- updated articles of association (AoA) if they contain clauses allowing for a permitted increase in capital.
Submitting an Authorized Capital Increase Form SH-7
Within 30 days of the resolution to raise the authorized share capital, Form SH-7 must be sent to the Registrar of Companies (RoC). The details of the approved capital increase are communicated to the Registrar using this form.
Details Required:
Details about the company, including the CIN.
- Type of resolution.
- Date of the meeting.
- Form MGT-14's Service Request Number (SRN), if it has been submitted already.
- Amounts of both new and original authorized share capital.
- The extra share capital.
- information about stamp duty fees.
- Digital Signatures and DINs as necessary.
Required Documents
- A copy of the capital modification resolution that has been verified as true.
- Updated the MoA to reflect the modifications to the capital clause.
- Updated AoA in the event that a new capital increase provision is added.
- Any additional optional papers that may be needed.
The E-Stamp Duty Payment
As required by legislation, pay the e-stamp duty on the increased Authorized Share Capital amount through the Ministry of Corporate Affairs (MCA) Portal.
How to Proceed After an Authorized Increase in Share Capital
Following the approved increase in share capital, a few actions must be taken to guarantee both regulatory compliance and the decision's successful execution.
Update the AOA and MOA.
Make sure that any modifications made to the Articles of Association (AOA) and Memorandum of Association (MOA) are reflected in all copies of these documents. This is to keep all official corporate records compliant with the law and consistent.
Allocation of Shares
The corporation can now raise its paid-up share capital because the authorized share capital has grown. This is usually accomplished by giving new equity shares to current or potential investors, which brings more money into the business.
Fines for Violations of Approved Capital Increase Procedures
Although the requirements for increasing permitted capital are outlined in Sections 61 and 65 of the Companies Act of 2013, fines are not clearly mentioned in these sections. Nonetheless, consequences for general non-compliance are covered in Section 450 of the Act.
1. A fine of Rs. 10,000 is levied against a firm or its officers who disregard the rules.
2. For persistent infractions, a daily fine of Rs. 1,000 is applied until the problem is fixed.
3. In particular, there is a penalty of Rs. 1,000 per day for the late filing of Form SH-7, which must be submitted within 30 days of the resolution to increase authorized capital.
4. This penalty, up to a maximum of Rs. 25 lakh, whichever is less, is imposed until the default is fixed.
Why Opt for Legal Vedas for Permitted Capital Growth?
Legal Vedas is your reliable partner for raising the authorized capital of your business, providing comprehensive legal and compliance solutions that streamline and expedite the process. Here's what makes us unique:
1. Professional Advice on Memorandum of Association (MOA) Amendments: Our experts are skilled in managing changes to your MOA, making sure that every aspect precisely fits your updated capital structure.
2. Effective MGT-14 Filing Support: Legal Vedas guarantees the accurate and timely submission of Form MGT-14, meeting all legal obligations for notifying the Registrar of Companies of changes in your company's capital.
3. Easy Form SH-7 Submission: We handle the Form SH-7 filing process with accuracy, assisting you in accurately and promptly documenting the rise in authorized capital.
4. Complete End-to-End Support: Legal Vedas offers ongoing advice and compliance support from the first assessment to the last submission, ensuring that the entire procedure runs smoothly, openly, and in complete accordance with the law.
Frequently Asked Questions (FAQs)
While paid-up capital is the actual amount of money received from shareholders for the issued shares, authorized capital is the maximum amount of share capital that a business is legally permitted to issue.
By amending its Memorandum of Association (MOA) to raise the maximum capital limit and by fulfilling the legal requirements outlined by the legislation, a corporation can increase the permitted share capital.
A company may do so to meet financial requirements, support new projects, enable mergers or acquisitions, issue more shares, or comply with legal or regulatory obligations.
The necessary documents generally include an updated Memorandum of Association (MOA), a shareholders’ resolution approving the increase, and statutory filings such as Form MGT-14 and Form SH-7, along with any other relevant company documents.
In the process, the Articles of Association are reviewed, board and shareholder meetings are held, essential approvals are obtained, necessary documents are submitted, and pertinent records are updated.
In that instance, in accordance with the Companies Act of 2013, the Articles of Association must be amended to incorporate clauses permitting adjustments to the authorized capital.
An EGM is held to obtain shareholders’ consent for the proposed increase in authorized capital, which is approved through a resolution passed by voting.
To ensure compliance with legal and regulatory obligations, all changes to a company's capital structure are recorded with the Registrar of Companies (RoC) using Form MGT-14.
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