Increase your company Authorized Share Capital
Investment is crucial for a company’s growth and progress in a corporate organization. A business needs a lot of funds in order to meet its day-to-day transactions. As such, businesses resort to various means to earn more funds. One such way of earning more funds is authorized share capital. A firm can increase its authorized share capital to generate more revenue. Authorized share capital is the capital stock of a company, that the company may issue to the shareholders.
The purpose of this article is to provide you with an overview of authorized share capital and how to increase your company authorized share capital. Furthermore, you will learn about the benefits, needs, and other important factors associated with authorized share capital.
A description of authorized share capital
The amount of shares a company may issue to its shareholders, as specified in its memorandum of association (MOA), is known as authorized share capital. It is the highest share value that a corporation is permitted to issue to stockholders under the terms of its governing instruments.
A corporation is not permitted to issue additional shares than what is allotted. However, a company can increase the authorized share capital. In accordance with the Companies Act,2013, a company must alter its MOA in order to issue shares above the stipulated amount.
Paid-up capital and authorized share capital
There are two forms of capital investment in a company:
1. Paid-up capital
Paid-up capital is the sum of money investors have given a business in exchange for shares. Paid-up capital will always be below or equivalent to authorized share capital, and the business is not permitted to issue further shares over the authorized share capital.
2. Authorized share capital
The maximum amount of shares that a corporation is legally permitted to issue to its stockholders is known as authorized capital. The authorized share capital is typically more significant than the paid-up capital, and it may be increased at any moment with the prior consent of the stockholders by approving a resolution.
Can you increase your company authorized share capital?
Yes, you can increase your company authorized share capital, only when it is permitted by the AOA and after receiving the members’ consent through an ordinary resolution to increase your company authorized share capital.
Need to increase your company Authorized Share Capital
A firm can get extra funds by issuing more capital stock. Throughout the course of its commercial operations, a firm may require additional capital for development, fulfilling asset requirements, and other purposes.
Other purposes may include:
- The need for enormous funds
- Funding the company’s new projects
- Merging of two enterprises and their cash infusion as part of an arrangement strategy
- Additional stock issues
- To fulfill the legal requirements
Advantages of increasing authorized share capital
The advantages of increasing authorized share capital include the following:
- Boosts capital stock: A corporation may raise any amount of authorized capital that it chooses, and make necessary adjustments in the MOA. Therefore, increasing authorized capital has a progressive effect on the total share capital of the company.
- Improves Financing Capacity: The aggregate net worth of the firm also improves with the rise in its share capital. This further improves the firm’s ability to obtain finance.
It might entice investment since, if there is adequate authorized capital, such investments can be easily accommodated.
Documents required to Increase Your Company Authorized Share Capital
- Certified copy of Ordinary Resolution
- Updated MOA and AOA: a copy of the updated MOA and AOA is required.
- Notification of the general meeting
- Any additional needed documents
Pre-requisites to increase your company authorized share capital
- A provision for an increment in authorized capital must be stated in the Memorandum of Association.
- The consent of stockholders is necessary.
Procedure to Increase Your Company Authorized Share Capital
1. Examine the company’s MOA
It is vital to check the AOA to ensure that there is a clause in the Articles of Association, referring to the augmentation of the authorized share capital before beginning the procedures for raising the authorized share capital. The business should perform necessary actions to alter the MOA to incorporate such a clause if there isn’t such a provision.
2. Organize a board meeting
The Board meeting must be scheduled to consider the proposal to amend the Memorandum of Association to increase the authorized share capital.
The Board of Directors must provide its consent during the meeting to modify the MOA by increasing the authorized share capital.
After that, a date, day, and time should be set for a General Meeting to be held in order to get the stockholder’s approval for raising the authorized share capital and amending the Company’s MOA.
3. Organize a general meeting
A stockholder’s meeting will be organized to pass an ordinary resolution to raise the authorized share capital and make related revisions to the MOA. The proposal is deemed to have been adopted when a majority of the directors eligible to vote on the proposal accept it.
4. Submitting the required applications
After the resolution is passed, the firm will notify the registrar to amend the MOA by raising the authorized capital stock in E-Form No. SH.7 along with the necessary fee within 30 days of passing the resolution.
The following documents must be included with the application:
- General Meeting’s Notice
- an authenticated copy of the resolution
- Modified MOA
- Modified AOA
- any additional document that could be necessary
- If required, designated stamp duty must be paid.
5. Acceptance of the ROC
The registrar will validate the application and raise the company’s authorized capital stock if the steps outlined in the Companies Act and the corporate rules are followed.
You can verify the progress of the modified authorized share capital when the process has been completed by visiting the business profile on the MCA website.
Describe MOA & AOA
MOA means Memorandum of Association.
AOA means Articles of Association.
MOA & AOA are essential for conveying the company’s most important information to its stockholders and other constituents. They protect and organize the firm while assisting in defining its mission, operating model, and identity.
MOA offers the following details:
- Name Clause
- Objective Clause
- Registration office location
- Limited liability Clause
- Company’s Paid-up capital
- Company’s share capital
- Subscription Clause
- In a nutshell, MOA demonstrates the company’s connections.
AOAs are vital records that must be produced when a business decides to merge with the Registrar of Companies (ROC). The Articles of Association (AOA) of a company sets forth the guidelines and policies that direct or regulate how the corporate actually operates or handles its internal affairs.
The MOA and AOA together are referred to as the Company’s Constitution.
Articles of Association include the following:
- Description of a company’s shares.
- Information on the rights, obligations, and dismissal of directors.
- Information on organizing meetings.
- Methods and regulations for closing down a corporation.
- Regulations on corporate dividends and capital.
- Specifics about the audit and finances of the firm.
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The authorized share capital is the entire amount of shares that an organization can distribute to its shareholders. Future expansion goals, capital needs, and financial predictions of the organization, among other things, can all be used to calculate the approved share capital. There are several reasons you might think about raising your company’s authorized share capital, including raising more money, financing new projects, and so on.
The above article clearly explains the method to increase your company share capital. Along with that, the article also addresses a number of other issues, such as the significance, necessity, prerequisites, and paperwork needed to increase your company’s share capital.
You can contact OnDemand International if you have additional questions about how you can increase your company authorized share capital. We are delighted to respond to all of your questions.
It is the maximum number of capital stocks that the Business may provide to its shareholders or investors.
Businesses may raise their authorized share capital for a variety of reasons like a firm may require additional capital for development, fulfilling asset requirements, funding projects, etc.
An increase in authorized share capital can boost the capital shares and can improve the financial capacity of the company.
Paid-up capital is the sum of money investors have given a business in exchange for shares whereas the maximum amount of shares that a corporation is legally permitted to issue to its stockholders is known as authorized capital.
Reshma Ali has great expertise in mergers & acquisitions, Financial planning, and international company formation and offers advice and knowledge to help businesses achieve their objectives.