The number of stock units (shares) that a company may issue, as specified in its association memorandum or formation papers, is known as Authorized share capital. Additionally, management does not fully utilize the authorized share capital in order to provide room for the possible issuance of additional stock should the company need to swiftly raise funds. Holding treasury shares of a firm also allows you to keep a majority stake in it.
Statutory Definition of Increase of Authorised Share Capital
The definition of authorized share capital is present under the provisions of the Companies Act, 2013. As per section 2(8) of the Companies Act, 2013 the authorized share capital is also known as the nominal amount of share capital of the company. Such capital is the maximum amount of share capital that is authorized by the company.
There is a specific procedure to be considered under the Companies Act, 2013 for the increase in authorized share capital of the company. Hence a company can increase the amount of business based on the amount of authorized share capital within the company.
Advantages of a Higher Authorized Share Capital
- Increase Business: The company can grow its activities with the increase in authorized share capital. The business must fulfill these conditions in order to accomplish its objectives and run its business.
- Expand Your Operations: An increase in authorized share capital can diversify a company’s operations. The company couldn’t diversify its operations without increasing the authorized share capital in some way.
- Adherence to the law: The company would be in compliance with the pertinent legal regulations by following suitable procedures.
The process for raising the authorized share capital
- Authorization must be in the Articles of Association (AOA) and must state the following:
The first requirement stated in section 61 as we read above also states that if it is authorized by the article then only the company can increase its authorized capital. Therefore, before going for increase of authorized capital, first need to check whether the company AOA contains provisions for an increase in authorized capital. If the AOA doesn’t include a clause enabling an increase in authorized capital, we must first amend the articles in accordance with Section 14 of the Companies Act of 2013, and only then can we move forward with an increase in authorized capital.
- Board Conference
The business must then give notice of the upcoming board meeting. The board meeting would be scheduled on a special day. The resolution for a modification of the articles (AOA) must be taken into consideration at the board meeting. The firm would only need to adopt a resolution for carrying out the same if the AOA contains a provision for authorized share capital. At the board meeting, the following agendas must be taken into account:
- With the approval of the shareholders, make a decision regarding the expansion of the company’s authorized share capital.
- The directors would then need to convene the Extra-Ordinary General Meeting and choose a date for it. The shareholders in such a meeting. According to Section 102 of the 2013 Companies Act, this notice and an explanation must be given 21 days before to the general meeting.
- Adopt the notice that will be discussed at the EGM and send it along with a note to all members, directors, and other relevant parties. Along with this, Form-MGT 14 pertaining to the increase in authorized share capital must be submitted to the appropriate authority.
- The director or a company secretary would thereafter be in charge of authorizing the power to issue such notification.
Organize a Special General Meeting (EGM): The next stage is for the members to hold an extraordinary general meeting and approve a special resolution to expand the business’s authorized share capital.
The Memorandum of Association be modified: The company has to follow the procedure associated to changing the MOA in the next stage.
Documents for Increase in Authorised Share Capital
The following documents are required to be submitted for an increase in Authorised share capital:
- Resolution – Board Resolution and Resolution of the General Meeting
- Copy of the Amended Articles of Association
- Copy of the Memorandum of Association
- Copy of the Explanatory Statement
- Copy of the Board Resolution of the Company
- Copy of the EGM Resolution
- Copy of the Notice of the Extraordinary General Meeting along with the Explanatory Statement
- Copy of the Altered MOA
- Form SH-7