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AUTHORIZED CAPITAL DECREASE

“Decreased authorized capital” refers to the reduction in the maximum amount of share capital that a company is authorized to issue to its shareholders. In other words, it represents the lowering of the upper limit on the total value of shares that a company can legally allocate and offer to its shareholders. This reduction is reflected in the company’s Memorandum of Association (MOA). With “India’s BEST TAX CONSULTANT.” Connect with our Experts.

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Why Should I Use Auriga Accounting For AUTHORIZED CAPITAL DECREASE ?

Auriga Accounting has a team of registration experts who can provide complete guidance to AUTHORIZED CAPITAL DECREASE.

book appointment

Our team of experts will get in touch with you and collect all necessary documents and details

Resolve all your queries

We fill out and file your application for registration

Complete your Authorized Capital DECREASE.

Your Authorized Capital DECREASE IS DONE .

OVERVIEW - AUTHORIZED CAPITAL DECREASE

“Decreased authorized capital” refers to the reduction in the maximum amount of share capital that a company is authorized to issue to its shareholders. In other words, it represents the lowering of the upper limit on the total value of shares that a company can legally allocate and offer to its shareholders. This reduction is reflected in the company’s Memorandum of Association (MOA).

Companies may choose to decrease their authorized capital for various reasons, such as simplifying their capital structure, returning capital to shareholders, adjusting to changes in business operations, or complying with regulatory requirements. The process of decreasing authorized capital is subject to legal procedures and regulatory approvals, and it is governed by the company’s Articles of Association and the relevant provisions of the Companies Act, 2013 in India.

ELIGIBILITY for AUTHORIZED CAPITAL DECREASE.

A decrease in authorized capital of a company in India can be pursued by companies that meet certain eligibility criteria and comply with the legal requirements specified under the Companies Act, 2013, and the rules and regulations issued by the Ministry of Corporate Affairs (MCA). Eligibility for a decreased authorized capital typically depends on the specific circumstances of the company and the reasons for seeking the reduction

 Here are some common scenarios where a company may be eligible for a decrease in authorized capital:

  • Excess Authorized Capital: The company may have authorized more capital than it actually requires for its business operations or future expansion plans. In such cases, it can seek to reduce its authorized capital to a more realistic and manageable level.
  • Capital Adjustment: A company may wish to adjust its authorized capital to align it with changes in its business operations, financial position, or capital structure.
  • Simplification of Capital Structure: Companies with complex or overcomplicated capital structures may opt to decrease their authorized capital to simplify it and make it more transparent.
  • Financial Distress: Companies facing financial difficulties may consider reducing their authorized capital to return capital to shareholders or to address accumulated losses.
  • Regulatory Compliance: Regulatory requirements or industry-specific regulations may necessitate a decrease in authorized capital. For example, certain types of companies, such as Non-Banking Financial Companies (NBFCs), may need to maintain a specific level of authorized capital to comply with regulatory guidelines.
  • Share Buyback: A company that has successfully completed a share buyback program may decide to decrease its authorized capital to reflect the reduced number of outstanding shares.
  • Merger or Acquisition: In cases of mergers or acquisitions, companies involved may adjust their authorized capital to facilitate the transaction, including the issuance of shares as part of the merger or acquisition agreement.
  • Liquidation and Winding-Up: In the process of winding-up and liquidation, a company may reduce its authorized capital to match the assets available for distribution to shareholders and creditors.

ADVATNAGES OF AUTHORIZED CAPITAL DECREASE.

  • Capacity for Business Expansion: By increasing authorized capital, a company can enhance its capacity to raise additional funds through the issuance of new shares. This capital infusion can facilitate business expansion, entry into new markets, and the pursuit of growth opportunities.
  • Attracting Investors: A higher authorized capital can make the company more attractive to investors, including venture capitalists, private equity firms, and angel investors. It signals the company’s potential for future growth and expansion.
  • Flexibility in Fundraising: A larger authorized capital provides flexibility in fundraising. The company can issue new shares to raise equity capital when needed without the need for frequent alterations to the authorized capital.
  • Acquisitions and Mergers: Having a larger authorized capital can be advantageous in situations involving mergers and acquisitions. It provides the company with the flexibility to issue shares as part of acquisition deals or strategic partnerships.
  • Dilution Control: The increase in authorized capital can help control dilution of ownership for existing shareholders when the company issues new shares. Dilution is the reduction in ownership percentage when new shares are issued.
  • Improved Financial Position: A higher authorized capital can improve the company’s financial position on its balance sheet. It reflects the company’s ability to access capital markets and attract investment.
  • Increased Borrowing Capacity: Lenders may view a company with a larger authorized capital as having a stronger financial position, potentially leading to better borrowing terms and access to debt financing.
  • Enhanced Stock Liquidity: An increase in authorized capital can enhance the liquidity of the company’s shares in the market. A higher number of shares available for trading can lead to increased trading volumes.
  • Strategic Flexibility: A larger authorized capital allows the company to be more strategic in its capital management. It can issue shares to meet specific strategic objectives, such as funding research and development or entering new product lines.
  • Compliance with Regulatory Requirements: Certain industries and regulatory bodies may require companies to have a certain level of authorized capital. Increasing authorized capital can ensure compliance with these requirements.
  • Preparation for Future Needs: It prepares the company for future capital requirements and business contingencies. Having a sufficiently high authorized capital can prevent delays in fundraising when opportunities arise.
  • Public Perception: A company with a substantial authorized capital may project a positive image to the public, stakeholders, and potential partners. It can be perceived as a financially stable and growth-oriented entity.

Documents for AUTHORIZED CAPITAL DECREASE.

    • Board Resolution: A board resolution approving the proposed increase in authorized capital. This resolution should be passed at a board meeting of the directors of the company.
  • Notice of General Meeting: A notice convening a general meeting of shareholders to obtain their approval for the increase in authorized capital. The notice should include details such as the date, time, and venue of the meeting.
  • Explanatory Statement: An explanatory statement accompanying the notice of the general meeting. This statement explains the reasons for the proposed increase in authorized capital, the implications for the company and shareholders, and other relevant details.
  • Minutes of General Meeting: Minutes of the general meeting where shareholders approve the increase in authorized capital. These minutes should document the proceedings, discussions, and the voting results.
  • Special Resolution: A special resolution passed by the shareholders approving the increase in authorized capital. A special resolution typically requires the affirmative vote of at least three-fourths of the shareholders present and voting.
  • Altered Memorandum of Association (MOA): An amended MOA reflecting the new authorized capital amount. The MOA should be updated to accurately represent the increased authorized capital.
  • Form SH-7: Form SH-7 is required to be filed with the RoC as part of the process of increasing authorized capital. This form provides details about the increase and is submitted after the shareholders’ approval.
  • RoC Filing Fees: Payment of the prescribed filing fees for submitting Form SH-7 and other related forms to the RoC. The fees may vary depending on the authorized capital increase.
  • Shareholders’ Consent Letters: Consent letters from shareholders who have agreed to subscribe to the increased capital, specifying the number of shares they intend to subscribe to and the amount they are willing to pay.
  • Board Resolution for Allotment of Shares: A board resolution authorizing the allotment of new shares to shareholders in accordance with the increased authorized capital.
  • Certified Copies: Certified copies of the amended MOA and other relevant resolutions and documents for the RoC’s records.
  • Publication: After obtaining RoC approval, publish a public notice in a widely circulated newspaper regarding the increase in authorized capital. This notice informs stakeholders and the public about the change.

PROCESS OF AUTHORIZED CAPITAL DECREASE.

Step 1: Board Resolution – Board Meeting: Convene a board meeting of the directors of the company to discuss and approve the proposed increase in authorized capital. Ensure that the board resolution is passed to authorize the increase.

Step 2: Notice of General Meeting – Notice of General Meeting: Issue a notice to shareholders for convening a general meeting. The notice should include details of the proposed increase in authorized capital, the date, time, and venue of the meeting, and an explanatory statement explaining the reasons for the increase.

Step 3: General Meeting of Shareholders

      1. General Meeting: Hold the general meeting of shareholders on the scheduled date. During the meeting, present the resolution for the increase in authorized capital and seek their approval.
      2. Special Resolution: Pass a special resolution at the general meeting approving the increase in authorized capital. A special resolution typically requires the affirmative vote of at least three-fourths of the shareholders present and voting.
      3. Minutes of the Meeting: Record the proceedings of the general meeting, including discussions and voting results, in the minutes of the meeting. These minutes should be maintained as part of the company’s records.

Step 4: Filing with Registrar of Companies (RoC)

      1. Form SH-7: Prepare and file Form SH-7 with the Registrar of Companies (RoC) within 30 days of passing the special resolution. Form SH-7 is used to report the increase in authorized capital. Attach the necessary documents, including the special resolution and the explanatory statement.
      2. Payment of Fees: Pay the prescribed filing fees for Form SH-7 as per the Companies (Registration Offices and Fees) Rules, 2014. The fees may vary depending on the authorized capital increase.

Step 5: RoC Approval – RoC Review: The RoC will review the filed documents, including Form SH-7. If the RoC is satisfied with the compliance and documentation, they will approve the increase in authorized capital.

Step 6: Publication – Public Notice: Publish a public notice in a widely circulated newspaper regarding the increase in authorized capital. This notice serves to inform stakeholders and the public about the change. It should include details of the resolution passed and the increased authorized capital.

Step 7: Updated Memorandum of Association (MOA)

      1. Amended MOA: Update the Memorandum of Association (MOA) of the company to reflect the new authorized capital amount accurately. This amended MOA should be filed with the RoC as part of the compliance process.
      2. Share Allotment: If new shares are to be issued as part of the increase in authorized capital, a board resolution should be passed to authorize the allotment of shares to shareholders.
      3. Record Keeping: Maintain proper records of all documents related to the increase in authorized capital, including board resolutions, special resolutions, Form SH-7, minutes of the general meeting, and the amended MOA.

COMPLIANCES FOR AUTHORIZED CAPITAL DECREASE.

Decreasing the authorized capital of a company in India involves a legal process with specific compliance requirements to ensure that the reduction is conducted in accordance with the Companies Act, 2013, and the rules and regulations prescribed by the Ministry of Corporate Affairs (MCA).

  • Here are the key compliance steps and considerations regarding decreased authorized capital:

  • Board Resolution: Board Meeting: Convene a board meeting of the directors of the company to discuss and approve the proposed decrease in authorized capital. Ensure that the board resolution authorizing the decrease is passed.
  • Notice of General Meeting: Notice to Shareholders: Issue a notice to shareholders for convening a general meeting to obtain their approval for the decrease in authorized capital. The notice should include details of the proposed reduction, the date, time, and venue of the meeting, and an explanatory statement explaining the reasons for the decrease.

General Meeting of Shareholders:

  1. Special Resolution: Pass a special resolution at the general meeting approving the decrease in authorized capital. A special resolution typically requires the affirmative vote of at least three-fourths of the shareholders present and voting.
  2. Minutes of the Meeting: Record the proceedings of the general meeting, including discussions and voting results, in the minutes of the meeting. These minutes should be maintained as part of the company’s records.

Filing with Registrar of Companies (RoC):

  1. Form MGT-14: Prepare and file Form MGT-14 with the Registrar of Companies (RoC) within 30 days of passing the special resolution. Form MGT-14 is used to report the decrease in authorized capital. Attach the necessary documents, including the special resolution and the explanatory statement.
  2. Payment of Fees: Pay the prescribed filing fees for Form MGT-14 as per the Companies (Registration Offices and Fees) Rules, 2014. The fees may vary depending on the extent of the reduction.
  3. RoC Approval: RoC Review: The RoC will review the filed documents, including Form MGT-14. If the RoC is satisfied with the compliance and documentation, they will approve the decrease in authorized capital.

  • Publication: Public Notice: Publish a public notice in a widely circulated newspaper regarding the decrease in authorized capital. This notice serves to inform stakeholders and the public about the change. It should include details of the resolution passed and the decreased authorized capital.
  • Updated Memorandum of Association (MOA): Amended MOA: Update the Memorandum of Association (MOA) of the company to reflect the new authorized capital amount accurately. This amended MOA should be filed with the RoC as part of the compliance process.
  • Record Keeping: Maintain proper records of all documents related to the decrease in authorized capital, including board resolutions, special resolutions, Form MGT-14, minutes of the general meeting, and the amended MOA
  • Compliance with Statutory Timelines: Adhere to the statutory timelines for each step of the process, including RoC filings and publication requirements. Failure to comply with these timelines may result in penalties.
  • Legal and Professional Guidance: Seek legal and professional advice to ensure that all legal requirements and procedures are met during the process of decreasing authorized capital.

WHY AURIGA ACCOUNTING ?

Auriga Accounting, as an accounting and financial services firm, can provide valuable support and guidance to a company seeking to decrease its authorized capital. While accounting firms primarily focus on financial and accounting matters, they can collaborate with legal professionals or law firms to assist with the complex process of decreasing authorized capital.

Here’s how Auriga Accounting may help:

  1. Initial Consultation: Auriga Accounting can offer an initial consultation to understand the company’s financial needs and objectives for reducing authorized capital. They can assess the financial implications and feasibility of the proposed reduction.
  2. Financial Analysis: Auriga Accounting Provide financial analysis to determine the impact of the decreased authorized capital on the company’s financial statements, balance sheet, and capital structure.
  3. Filing Assistance: Auriga Accounting Collaborate with legal experts or law firms to assist in the preparation and filing of necessary documents, including board resolutions, special resolutions, Form MGT-14, and any other required forms.
  4. Compliance Review: Auriga Accounting Ensure that the company adheres to statutory compliance requirements at each stage of the process, including RoC filings, publication of notices, and other regulatory obligations.
  5. Financial Projections: Auriga Accounting Help the company prepare financial projections and forecasts that reflect the effects of the decreased authorized capital on the company’s financial performance and future financial needs.
  6. Capital Structure Analysis: Auriga Accounting Analyze the company’s capital structure to determine the optimal level of authorized capital that aligns with its strategic objectives post-reduction.
  7. Cost Analysis: Provide a cost analysis to assess the fees and expenses associated with the decrease in authorized capital, including RoC filing fees and publication costs.
  8. Financial Documentation: Assist in preparing and maintaining proper financial documentation related to the decrease in authorized capital for internal records and compliance purposes.
  9. Communication with Regulatory Authorities: Collaborate with legal experts to communicate with regulatory authorities, if necessary, to obtain approvals or clearances for specific aspects of the decrease in authorized capital.
  10. Coordination with Legal Professionals: Work closely with legal professionals, such as corporate lawyers or company secretaries, to ensure that all legal requirements are met and that the process is conducted in compliance with the Companies Act, 2013, and other applicable laws and regulations.
  11. Professional Guidance: Provide professional guidance and advice throughout the process, keeping the company informed about the financial and compliance aspects of the decrease in authorized capital.
  12. Record Keeping: Help the company maintain proper records of all financial and legal documents related to the decrease in authorized capital for future reference and audits.

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