Enhancement of Authorized Capital

Authorized Capital is the maximum amount of capital that a company can raise through the sale of its shares.

Authorized share capital may be divided into:

• Issued Capital means such capital as company issues from time to time.
• Paid-up Capital is the amount company received from the shareholders in exchange for the shares issued.
• Subscribe Capital money-capital which is subscribed by the members of the company.

The memorandum of the company contains the “capital clause” which states the authorised share capital of the company and its further classification thereof. Out of the authorized share capital, the company can issue shares to their subscribers but a company cannot issue shares more than the authorized capital unless and until it has been recommended by the Board of Directors and approved by the shareholders.
Provisions of the Companies Act, 2013 and rules made thereunder govern the procedure to enhance the authorised share capital of a company.

PROCEDURE:

• Authorisation in Articles: The articles must contain the enabling provisions for alteration of authorised share capital. The reason being, the companies act mandates that for increasing the authorized share capital, authorisation in articles is a pre-condition.
• Calling of Board Meeting: Notice for convening a board meeting containing the following agenda items shall be issued:
  1. To get in-principal approval of directors for an increase in authorized share capital;
  2. Extra-ordinary General Meeting (EGM) is fixed to get the approval of shareholders, by way of an ordinary resolution, for amendment in the authorized share capital clause of the memorandum;
  3. To approve the notice of EGM along with the agenda as per the Companies Act.
  4. To authorize the director/ company secretary to issue a notice of the EGM as approved by the board.
• Notice of the EGM to be issued to all the members, directors and the auditors of the company under the provisions of the Companies Act.
• Holding of General Meeting: The EGM shall be held on the due date and a necessary ordinary resolution shall be passed, for an increase in the authorized share capital of the company.
• ROC Form Filing:
  1. Within 30 days of passing the ordinary resolution, the relevant form needs to be filed with the ROC;
  2. The company shall file a notice in the prescribed form within 30 days of the increase in the authorised share capital of the company.