Study Notes - Procedure to increase in Authorised capital
June 19, 2020
It is the maximum limit of share capital up to which a company can issue its shares to shareholders. A company is not authorized to issue shares beyond the specified limit. Hence, if a company wants to issue shares beyond the limit then it has to amend its MOA as per the Companies Act.
Pre-requisites of increase in authorized capital
- An Articles of Association must have a clause for an increase in authorized capital
- Shareholders’ approval is a must
How to increase the authorized capital of a company?
- Step 1: Vetting of MOA and AOA
A company must check its MOA and AOA about the limit of authorized capital. If the issue of shares is going to be beyond the specified limit in MOA then it has to increase its authorized capital. Before increasing, the company must check whether it is can do so legally as per the norms of association of the company. Altering AoA is one option to amend such provisions.
Alteration of AOA:
To alter the AOA, the company must take approval from the shareholders in an annual general meeting or extra-ordinary general meeting. Such altered AOA must be filed with MCA within 30 days from the date of the resolution.Once the AOA is altered, it can proceed with further procedure to increase authorized capital.
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Step 2: Holding Board Meeting
A board meeting must be arranged to take the approval of the board to increase authorized share capital. Further, to decide the date and time to call an AGM or EGM to take the shareholders’ approval. A notice for holding an AGM or EGM must be sent to all the shareholders as per the rules. A director must be authorized to file all the necessary forms with the MCA. - Step 3: Hold Shareholders Meeting
The company shall hold the AGM/EGM on the specified date and time to take the approval for an increase in authorized capital. An ordinary resolution must be passed in the meeting. - Step 4: Intimation to the ROC
After taking approval in shareholders meeting a company shall draft the altered MOA to increase authorized share capital. A company has to intimate about the same by filing form SH-7 with the MCA. The form must be filed in 30 days from the date of resolution. The documents required to file the said form are as under.- A certified true copy of Board resolution for alteration in AOA
- A certified true copy of Board resolution for alteration in MOA
- Notice of AGM/EGM
- A certified true copy of Shareholders resolution
- Altered copy of AOA
- Altered copy of MOA
After receiving approval from the MCA, a company shall alter its every copy of the MOA and AOA. It is necessary to incorporate changes in AOA and MOA and put it up on website if any.
Conclusion
To sum up, it all boils down to whether or not the Company has the authority and permission to increase authorized share capital or not. Accordingly, it must comply with the process of increasing share capital. Also, filing up all the necessary forms with MCA within the due dates is another prerequisite to avoid the penalties for non-compliance.
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