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AUTHORIZED CAPITAL INCREASE

“Authorized Capital” refers to the maximum amount of share capital that a company is authorized to issue to its shareholders. It represents the total value of shares that a company can legally allocate and offer to its shareholders during its lifetime, as specified 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 INCREASE ?

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

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 Increase.

Your Authorized Capital Increase IS DONE .

OVERVIEW - AUTHORIZED CAPITAL INCREASE

“Authorized Capital” refers to the maximum amount of share capital that a company is authorized to issue to its shareholders. It represents the total value of shares that a company can legally allocate and offer to its shareholders during its lifetime, as specified in the company’s Memorandum of Association (MOA).

Key points to understand about authorized capital under the Companies Act, 2013 include:

  • Limitation: The authorized capital sets an upper limit on the total value of shares that a company can issue. It represents the company’s capacity to raise funds through the issuance of shares to its shareholders.
  • Defined in MOA: The authorized capital amount is defined and specified in the company’s MOA at the time of its incorporation. Any change to the authorized capital requires approval and legal procedures, including alterations to the MOA.
  • Flexibility: Companies have the flexibility to determine their authorized capital at the time of incorporation based on their anticipated funding needs. It’s not mandatory for a company to issue the entire authorized capital immediately; they can issue shares gradually as needed.
  • Alteration of Authorized Capital: If a company intends to increase its authorized capital beyond the initially specified amount, it must follow the legal procedures outlined in the Companies Act, 2013, including obtaining approval from shareholders through a special resolution and filing the necessary documents with the Registrar of Companies (RoC).
  • Fees: The RoC charges filing fees based on the increased authorized capital when a company alters its authorized capital.
  • Paid-up Capital: Authorized capital is distinct from paid-up capital. The paid-up capital represents the actual amount of capital that shareholders have paid for their allocated shares. A company can issue shares up to the authorized capital limit, but the actual capital received from shareholders is represented by the paid-up capital.
  • Par Value: Shares issued by the company may have a par value or may be issued at a premium, depending on the company’s MOA and the terms of the share issue.
  • Importance for Fundraising: A company’s authorized capital plays a crucial role in fundraising activities, as it determines the potential equity financing capacity of the company. Investors and lenders often consider the authorized capital when assessing a company’s financial capacity.
  • Disclosure: The authorized capital is disclosed in the company’s financial statements, prospectuses, and other legal documents.
  • Change of Authorized Capital: Companies may seek to increase their authorized capital to accommodate business expansion, attract additional investors, or for other reasons. Decreasing authorized capital may also be pursued in specific situations.

ELIGIBILITY for AUTHORIZED CAPITAL INCREASE.

Eligibility for increasing the authorized capital of a company in India is not restricted to specific types of companies but is primarily determined by the company’s business needs, objectives, and compliance with the legal requirements outlined in the Companies Act, 2013, and the rules and regulations prescribed by the Ministry of Corporate Affairs (MCA). In general, any company that complies with the statutory requirements and has a legitimate business reason for increasing its authorized capital can pursue this action.

Here are some scenarios in which a company may be eligible for an increased authorized capital:

  • Business Expansion: When a company plans to expand its operations, enter new markets, or undertake significant projects that require additional funds, it may need to increase its authorized capital to raise equity capital through the issuance of new shares.
  • Fundraising: Companies looking to attract new investors or raise capital through equity financing may increase their authorized capital to have the capacity to issue more shares to investors.
  • Strategic Objectives: Companies may increase authorized capital to implement strategic objectives, such as acquiring other businesses, entering joint ventures, or diversifying their business activities.
  • Compliance with Regulatory Requirements: Certain industries or types of companies, such as banking and financial institutions, may have regulatory requirements mandating a specific level of authorized capital to ensure financial stability and security.
  • Shareholder Demands: Shareholders may request an increase in authorized capital if they believe that it would benefit the company, enhance its market position, or provide liquidity for trading their shares.
  • Capital Adequacy: Companies may increase their authorized capital to maintain adequate capitalization levels in compliance with regulatory guidelines or to meet specific financial requirements.
  • Reduction of Debt: An increased authorized capital can facilitate the conversion of debt into equity, which can be advantageous for debt restructuring or reducing debt levels.
  • Preparation for Future Needs: Companies may proactively increase their authorized capital to be prepared for future funding requirements or unforeseen business opportunities.
  • Stock Split or Bonus Issue: In some cases, companies may increase authorized capital to facilitate a stock split or a bonus issue of shares to existing shareholders.

ADVATNAGES OF AUTHORIZED CAPITAL INCREASE.

  • 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 INCREASE.

  • 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 INCREASE.

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 INCREASE.

  • Board Resolution: Pass 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: 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.
  • General Meeting of Shareholders:
      1. 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.
      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):
      • 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.
      • 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.
  • RoC Approval: 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.
  • 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.
  • 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.
  • 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.
  •  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.

  • 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 increasing authorized capital.

WHY AURIGA ACCOUNTING ?

  • Initial Consultation: Auriga Accounting can offer an initial consultation to understand the company’s financial needs and objectives related to the increase in authorized capital. They can assess the financial implications and feasibility of the proposed increase.
  • Financial Analysis: Auriga Accounting Provide financial analysis to determine the impact of the increased authorized capital on the company’s financial statements, balance sheet, and capital structure.
  • 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 SH-7, and any other required forms.
  • 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.
  • Financial Projections: Auriga Accounting Help the company prepare financial projections and forecasts that reflect the effects of the increased authorized capital on the company’s financial performance and growth prospects.
  • 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.
  • Cost Analysis: Auriga Accounting Provide a cost analysis to assess the fees and expenses associated with the increase in authorized capital, including RoC filing fees and publication costs.
  • Financial Documentation: Auriga Accounting Assist in preparing and maintaining proper financial documentation related to the increase in authorized capital for internal records and compliance purposes.
  • Communication with Regulatory Authorities: Auriga Accounting Collaborate with legal experts to communicate with regulatory authorities, if necessary, to obtain approvals or clearances for specific aspects of the increase in authorized capital.
  • Coordination with Legal Professionals: Auriga Accounting 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.
  • Professional Guidance: Auriga Accounting Provide professional guidance and advice throughout the process, keeping the company informed about the financial and compliance aspects of the increase in authorized capital.
  • Record Keeping: Auriga Accounting Help the company maintain proper records of all financial and legal documents related to the increase in authorized capital for future reference and audits.

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