When an entrepreneur decides to get company registration and settles on the business structure most suited to the purpose of the business and other co-owners, it is essential to decide what the share capital of the company is to be and how can we Increase Authorised Share Capital.
The share capital is that part of a company’s equity which has been raised by issuing shares and selling them to stockholders in exchange for capital (cash or other considerations). In order to maintain financial decorum, the government stipulates that no company can indiscriminately issue shares for the purpose of raising capital. To that effect, authorised share capital is the maximum value of share capital that the company is legally authorised to issue to shareholders.
Hence the authorized share capital of the company can be increased at any time, subject to the constraints and clauses dictated by section 61 (read with section 13 and 14) of the Companies Act, 2013.
Step 1- Verifying approval within the Articles of Association
Section 61 of the Companies Act, 2013, orders that for expanding the Authorised offer capital, approval in Articles of Association is a pre-condition. Hence verifying that the necessary provisions are spelled out within the Articles is a pre-requisite to increasing authorised share capital.
In case the Articles do not approve an increase, it is then incumbent to amend them to allow the same before proceeding, as per the provision of Section 14 of the Companies Act, 2013. The Article of Association should be amended by a special resolution.
Step 2- Board meeting to notify the incidence of EGM
A board meeting is called wherein it is decided that an EGM is to be held to discuss and vote on the matter of raising authorised share capital. Once the date, place, and time of the EGM are agreed upon by the Board, a notice for the same is issued to every member/shareholder, director, auditor of the company, who will thereafter vote upon the matter of raising authorised share capital, as per Section 101 of the Companies Act 2013.
Moreover, the notice must consist of the voting method that is to be utilized for passing the special resolution to increase the authorised share capital of the company, and the explanatory statement pursuant to Section 102 of the Companies Act is to be enclosed as well.
Step 3- Extraordinary General Meeting
Once notice of the impending EGM has been sent out and the meeting is in session, the matter of increasing authorised share capital is deliberated upon and then voted upon in the manner set forth in the notice for the incidence of the EGM. The Ordinary Resolution under section 61(1)(a) of the Companies Act, 2013, is then passed to increase in authorised share capital of the Company.
Step 4- ROC Form documenting
Within a time frame of 30 days of the passing of Ordinary Resolution, Form SH-7 must be filed with the concerned Registrar of Companies (RoC) along with the necessary fees and attachments as prescribed by Section 64. In addition to the altered MoA and AoA, the following attachments are required to be submitted along with e-form SH-7
- Board Resolution for increase in authorised share capital;
- Board resolution for modification in the capital clause of Memorandum of Association;
- Shareholders’ Resolution that has been passed in the EGM.
The RoC will then check the forms and attached documentation. If all necessary requirements are fulfilled, RoC shall approve the Increase Authorised Share Capital.