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Authorized Share Capital Change of a Company

A company may require augmenting its authorised share capital before issuing new equity shares and enhancing paid-up capital. Authorised share capital denotes the total value of shares that a company can issue, while paid-up capital is the total worth of shares the company has issued. Paid-up capital cannot go above authorised capital. Therefore, if a company possesses an authorised capital of Rs 10 lakhs and paid-up capital of Rs.10 lakhs can set up new shareholders. It can do so either by :

Adding authorised share capital and issuing new shares

or

Transferring shares from active shareholders to the new shareholders

In most scenarios, new shares are issued and authorised capital is enhanced. Under Companies Act, 2013, the procedure of Increase in Authorise Capital is administered by Section 61 read with section 13 and 64 of Companies Act, 2013.

Process to enhance Authorized Share Capital

Authorisation in Article is compulsory – The Company requires making sure that its Articles of Association has a provision for authorising it to enhance its authorized share capital. Under Section 61 of the Companies Act, 2013 Authorization in Articles of Association is a pre-condition for increasing the Authorised share capital. If there is no such provision then the company must take steps to change its Articles of Association consistent with the provision of Section 14 of the Companies Act, 2013. It requires inserting the clause enabling raise in the Authorised share capital of the Company.

Calling of Board Meeting - Issuing notice consistent with the provisions of section 173(3) of the Companies Act, 2013, for arranging a meeting of the Board of Directors. Key agenda for the Board meeting is needed to be :

Acquiring approval of Directors to increase authorised share capital

Date, time and place for arranging Extra-ordinary General meeting (EGM) must be fixed to get approval of shareholders by means of Ordinary Resolution for alteration in authorised share Capital clause of Memorandum of Association. This alteration in authorised share Capital clause of Memorandum of Association should follow the requirement of section 61 of the Companies Act, 2013.

Under section 102(1) of the Companies Act, 2013, for approving notice of Extra-ordinary General meeting, agenda and explanatory statement should be annexed to the same.

Authorising the Director or Company Secretary to issue Notice of the Extra-ordinary General meeting (EGM), approved by the board under clause 2(c) stated above.

Issuing Notice of the Extra-ordinary General meeting (EGM) – A notice must be issued to all members, directors and the auditors of the company following the provisions of Section 101 of the Companies Act, 2013.

Hold General Meeting - Extra-ordinary General meeting (EGM) should be held on due date and pass the required Ordinary Resolution under section 61(1)(a) of the Companies Act, 2013, to enhance authorized share capital of the Company.

Registrar of Companies Form filing : Filing form SH-7 within 30 days of passing ordinary resolution with the associated Registrar of Companies, with recommended fees and following attachments as mentioned in section 64 :

Notice of EGM

Changed Memorandum of Association

Certified True copy of Ordinary Resolution

Associated Registrar of Companies (ROC) will verify the E-forms and attached documents. If he/ she becomes satisfied with then will approve the increase in authorize share capital.

Notice must be offered to Registrar to alter the share capital

According to section 64 of the Companies Act, 2013, where a company modifies its share capital to increase authorised share capital consistent with sub-section (1) of section 61, the company must file a notice in the recommended form with the Registrar within 30 days of such increase with a copy of modified Memorandum.

There is no need to pass special resolution to enhance authorised share capital

According to a number of experts, increase in authorised share capital Special Resolution should be passed, as correction in Memorandum of Association can be done be passing Special Resolution under section 13 of the Companies Act, 2013.

Amendment in Memorandum of Association by passing Special Resolution is needed only when there is an alteration in particular clause of MOA like change in name clause or modification in registered office clause, as predicted in Section 13.

Alteration in capital clause of Memorandum of Association for increase in authorised share capital is administered by Section 61 of the Companies Act, 2013 and section 61 is silent about the nature of shareholders' resolution. So in the above situation, an ordinary resolution will be enough to enhance authorised share capital.

Secretarial Practice or Drafting

Organize a board meeting by issuing notices to all directors

Sample Board Resolution to :

Raise in Authorised Share Capital - Resolved that pursuing the provisions of Section 61 and 64 and other applicable provisions, if any, of the Companies Act, 2013 (including any correction or re-passing) and the rules outlined there under, the permission of the Board of Directors of the Company be and is hereby dealt, conditional on the approvals of shareholders in the General meeting, to augment the Authorized Share Capital of the Company from existing Rs 50,00,000 divided into 5,00,000 Equity Shares of Rs 10 each to Rs 75,00,000 divided into 7,50,000 Equity Shares of Rs 10 each by making additional 2,50,000 Equity Shares of Rs 10 each regarding the existing Equity Shares of the Company.

Changing the Capital Clause of Memorandum of Association

Resolved that following the provisions of Section 13, 61 and 64 and other related provisions of the Companies Act, 2013 (including any modification thereto or re-ratification thereof) and the rules formed there under, the permission of the Board of Directors of the Company be and is hereby dealt, put through the consents of shareholders in the General meeting, for changing Clause V of the Memorandum of Association of the Company with the subsequent clause.

The Authorised Share Capital of the Company is Rs 7500000 divided into 750000 Equity Shares of face value of Rs 10 each.

Sample Shareholders' Resolution should be passed in the General Meeting

Increase in Authorised Share Capital

Special Business

If considered well to pass with or without modification(s), the following resolution as an Ordinary Resolution :

Resolved that following the provisions of Section 61, Section 64 and other appropriate provisions, if any, of the Companies Act, 2013 (including any alteration thereto or re-passing thereof) and the rules made there under, the approval of the members of the Company be and is hereby accorded to enhance the Authorized Share Capital of the Company from existing Rs 50,00,000 divided into 5,00,000 Equity Shares of Rs 10 each to Rs 75,00,000 divided into 750000 Equity Shares of Rs 10 each by making additional 250000 Equity Shares of Rs 10 each regarding the existing Equity Shares of the Company.

Resolved further that the Memorandum of Association of the Company should be changed in the following manner i.e. active Clause V of the Memorandum of Association should be deleted and the same must be changed with the following new clause as Clause V :

The Authorised Share Capital of the Company is Rs 7500000 should be divided into 750000 Equity Shares of face value of Rs 10 each.

Resolved further that for the reason of offering effect to this resolution, the Board of Directors of the Company be and is hereby authorized to take all such steps and actions and offer such directions as may be in its absolute discretion deemed essential and to resolve any question that may arise in this matter, without being needed to search any further approval of the shareholders or else and that the shareholders shall be considered to have given their consent thereto specifically by the authority of this resolution.

Frequently Asked Questions

Ques: What is known as paid-up capital of company?

Paid-up capital is the money that a company acquired from selling its shares.

Ques: Whether a paid-up capital can be borrowed?

Paid-up capital refers to money which is not borrowed.

Ques: Is there any limit of paid-up capital to incorporate private limited company?

No, there is not any limit for paid up capital.



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