Before going to the procedure, let’s have a look at the meaning of Authorised Capital of the Company.
Section 2 (8) of the Companies Act, 2013, defines Authorised Capital as such capital that is authorised by the memorandum of a Company to be the maximum amount of share capital of the Company. Authorised Capital is also known as Nominal Capital.
At the time of Company incorporation, the authorized capital is specified in the Capital clause i.e. the fifth clause of Memorandum of Association of the Company. It is the maximum limit of share capital up to which a Company can issue its shares to shareholders.
When the business of the Company expands, then the Company require funds for its expansion, and one of the way available to Company is to issue shares but in case the Company is intending to issue share beyond its authorised share capital then it requires to increase its Authorised Share Capital.
In case the Company wants to increase its Authorised Share Capital, they can do so by changing its Capital clause by following the requisite legal procedure and passing Ordinary Resolution as prescribed under Section 61, 64 read with rule 15 of The Companies (Share Capital and Debentures) Rules, 2014.
The Company shall ensure that whether its articles authorise alteration of capital or not. If AOA doesn’t contain the provision for increase in authorised capital, then first we have to alter the articles as per the provision of Section 14 of the Companies Act, 2013 after that we can proceed towards the increase in authorise capital.
The procedure for Increase in Authorised Share Capital is as follows:
Step 1: Calling of Board Meeting
First call a board meeting by giving a clear 7 days’ notice for approval of board for increase in Authorised Share Capital and to call Extra Ordinary General Meeting for Shareholders approval. A detailed agenda along with notes to agenda and proposed Board Resolutions should be attached with the Notice.
Step 2: Hold the Board Meeting
In the Board Meeting take the approval of Directors to:-
- Increase the Authorised Share Capital of the Company;
- Fix the date, time and venue to call the Extra-Ordinary General Meeting to get shareholders’ approval for increase in Authorised Share Capital;
- Approve and issue the notice of EGM along with agenda to be discussed; and
- Authorise a Director to file all the necessary forms with the MCA.
Step 3: Issue notice of General Meeting
Issue clear 21 days’ notice of Extraordinary Meeting to all Members, Directors and the Statutory Auditors of the Company in accordance with the provisions of Section 101 of the Companies Act, 2013 along with explanatory statement as per Section 102 of the Companies Act, 2013 detailing the reasons for change in object clause. Interest of the Directors in the resolution should be disclosed in the explanatory statement.
Step 4: Hold the General Meeting
Hold the Extraordinary General Meeting to take shareholders’ approval for increase in Authorised Share Capital and draft altered Memorandum of Association by passing an Ordinary Resolution under Section 61(1) of the Companies Act, 2013.
Step 5: Filing with the Registrar
After passing the Resolution, the Company shall file the resolution passed alongwith other required documents with the concerned Registrar in Form SH-7 along with prescribed fee and stamp duty within 3o days of passing such resolution.
Attachments with Form SH-7
- Certified copy of the Resolution along with the explanatory statement
- Altered Memorandum of Association
- Notice of Extra ordinary General Meeting
- In case the EOGM is held at a shorter notice, then the consent as received from the shareholders.
Step 6: Approval by Registrar
The Registrar will examine and register the Increase in Authorised Share Capital. The increased Authorised Share Capital will reflect on the Master Data of the Company on MCA Portal.
Note: The Company needs to incorporate the alteration in every copy of the Memorandum of Association.