One of the most crucial issues that the promoters must make throughout the incorporation process is the amount of capital to put in the firm. As the firm grows, the firm may consider expanding its operations, size, scale, or structure. To make that goal a reality, more capital may need to be invested into the firm, thereby increasing the size of the organization.
The proportion of capital required may at times exceed the amount of capital authorized at the moment. The maximum amount of capital for which the Company can issue shares to shareholders is known as the authorized capital. The Authorised Capital level is established in the Memorandum of Association under the Capital Clause, as per Section 2(8) of the Companies Act, 2013. A corporation may take the actions necessary to extend the approved capital limit in order to issue more shares, but it cannot in any circumstance issue shares in excess of the authorized capital limit.
When an entrepreneur decides to register a company and chooses the business structure most suited to the company’s goals and other co-owners, it’s critical to determine what the company’s share capital will be and how we might increase authorized share capital.
The share capital of a firm is the amount of its equity that has been raised by issuing and selling shares to stockholders in return for cash (cash or other considerations). The government rules that no business can issue shares indiscriminately for the aim of acquiring cash in order to preserve financial decorum.
DEFINITION OF AUTHORISED CAPITAL UNDER COMPANIES ACTS,2013
According to Section 2 (8) of the Companies Act of 2013, “Authorized Capital” refers to the capital that is authorized by the company’s memorandum to be the maximum amount of the company’s share capital.
The business can grow its operations up to the permitted capital limit. If the firm needs to expand its business, it will need to invest more money than it did at the start.
As a result of the aforementioned definition, it is evident that a corporation can extend its operations up to the amount of authorized capital. If those wishing to develop the firm by bringing in additional money, they must first raise the authorized capital.
DEFINITION OF PAID-UP CAPITAL UNDER COMPANIES ACTS,2013
Section 2 (64) defines “paid-up share capital” or “share capital paid-up” as the total amount of money credited as paid-up that is equivalent to the amount received as paid-up in respect of shares issued, as well as any amount credited as paid-up in respect of company shares, but excludes any other amount received in respect of such shares.
It is the amount invested in a business by its shareholders. The authorized capital must always be more than the paid-up capital. This capital reflects how a company’s growth in the market necessitates equity finance. A company’s paid-up capital is used to raise funds, which can be done through an initial public offering (IPO) or an extra issuance.
CHANGES TO THE AUTHORIZED CAPITAL PROCEDURE
1. Get across the Articles of Association.
The Articles of Association is a legal document that lays out the rules and regulations that govern the company’s internal operations. As a result, before any action on the authorized capital may be done, the Articles of Association must be checked to see if there is a provision that allows for a change in the approved capital of the business. If the provision is in place, the method is done quicker.
If the provision does not exist, the business must first revise its Articles of Association, as provided forth in Section 14 of the Companies Act, 2013 (“Act”), before proceeding with the change in authorized capital.
2. A board meeting will be held.
- At least 7 days prior to the meeting, a notice of the plan will be issued to the directors at their respective registered addresses.
- Pass a Board Resolution calling for an Extraordinary General Meeting and issuing notice pursuant to Section 101 of the Act, where the modified section on authorized capital in the Memorandum of Association can be offered for approval by passing an Ordinary Resolution. The proposed change must be made in compliance with Section 60’s requirements.
- The shareholders must be provided notice of the meeting’s details, including the agenda, date, time, and location.
- The mode of voting to be used for passing the resolution at the Extraordinary General Meeting must be specified in the notice.
- The following people will receive notice of the Extraordinary General Meeting:-
- Shareholders
- Auditors
- Directors
The notice of the EGM must be issued at least 21 days before the date of the EGM. A shorter notice period can be issued if and only if the permission of at least 95 percent of the members entitled to vote at the meeting is provided. Consent must be gained in one of two ways: in writing or in electronic mode.
3. The Extraordinary General Meeting is being held.
The issue of the increase in share capital is submitted to the meeting after it has started. After that, voting takes place in a predefined order to reach a decision on the issue. After the approval is received and the resolution is enacted, the explanatory statement is added, and the Authorised Capital is increased.
4. The Registrar of Companies must be approached.
A corporation must file eForm SH-7 and eForm MGT – 14 (if applicable) with the Registrar within 30 days of the resolution being approved, together with the specified fees.
Form MGT 14: This form must be filed with the RoC within 30 days of the resolution being passed. The following information must be entered into the MCA portal:
- The company’s information, including its CIN.
- The purpose for which the form is being submitted.
- The date on which the notification was sent out.
- The date on which the resolution was passed.
- Information on the resolution.
- DINs and Digital Signatures
The following attachments must be provided: –
- A certified copy of the EGM resolution passed,
- A copy of the new MOA (change made in the Capital Clause),
- A copy of the new AOA (provision for the increase in authorized share capital).
SH – 7 Form: This form must be submitted to the RoC within 30 days of the resolution’s acceptance. The purpose of this form is to notify the Registrar of the specifics of an increase in authorized capital. The following information should be entered into the MCA portal:
- The company’s information, including its CIN.
- The resolution kind.
- The meeting’s date
- Form MGT – 14’s Service Request Number (SRN) which has already been submitted.
- The amount of original approved share capital and the amount of new authorised share capital are detailed.
- Details on how the new share capital will be split up.
- Information on the Stamp Duty Fees that were paid.
- DINs and digital signatures.
The following attachments must be submitted:
- A certified genuine copy of the capital alteration resolution.
- A copy of the new MOA (change made in the Capital Clause).
- A copy of the revised AOA.
If there are any additional optional attachments. To prevent any penalties or future penalty, the documents must be submitted within the time frame specified to avoid the firm as well as its executives being held guilty.
CONCLUSION
The capital that is authorised by the company’s memorandum to be the maximum amount of its share capital is referred to as “authorised capital.” A company’s activities can expand up to the permissible capital limit. Those who want to expand the company by bringing in more money must first raise the authorised capital.