If you want to expand your company’s scope of work, size or area of operations, you will need funds. This is true irrespective of your company’s size, industry or business profile (B2B, B2C, etc).
One way to raise these funds is to increase your company’s Authorised Share Capital.
But what is Authorised Share Capital and how can you increase it?
What is Authorised Share Capital?
In simplest terms, Authorised Share Capital broadly refers to a company’s capital. It comprises every single share of every category that the company could issue. It is related to paid-up capital, subscribed capital and issued capital. However, these terms are not synonyms of each other.
Authorised share capital may be greater than the shares available for trading. In this case, the shares that have actually been issued are known as outstanding shares. As a company buys back or issues more shares, its outstanding shares will fluctuate. However its authorised share capital will not increase without a stock split or some other dilutive measure. Moreover, authorised share capital is set by shareholders and can only be increased with their approval.
Public companies may be required to have a minimum amount of authorised share capital as a condition for listing on the stock exchange.
Companies often hold back a portion of their authorised share capital for future financing needs. This is why increasing authorised share capital is one way to raise funds for expansion.
How to increase Authorised Share Capital: A step-by-step guide
A company can increase its Authorised Share Capital by following the below steps systematically and in the correct order.
- Call a Board meeting
Issue a notice to call a board meeting at least 7 days before the proposed date of meeting. Also provide a proper agenda that covers the following items:
- Get approval from the Board of Directors to increase Authorised Share Capital
- Fix the date, time and place for holding an Extraordinary General Meeting (EGM). The purpose of the EGM is to get shareholders’ approval for increasing Authorised Share Capital by way of ordinary resolution to change the AOA (Article of Association)
- Authorise the Director or Company Secretary to issue the EGM notice to all the members of the company
- Prepare a draft of the resolution
- Hold an EGM
The process of increasing the Authorised Share Capital is governed by Section 61 read with Section-13 and 64 of Companies Act, 2013.
Pass the ordinary resolution (with the approval of at least 51% shareholders) to increase the Authorised Share Capital as per the requirement of section 61 of the Company Act, 2013 for change in Capital Clause of Memorandum of Association (MOA) of Company.
- File with ROC
Within 30 days of passing ordinary resolution, file e-form SH-7 with the ROC. This can be done online.
Include the following attachments:
- Notice of Extraordinary General Meeting (EGM)
- Certified true copy of the resolution passed at EGM
- Altered Memorandum of Association (MOA)
- Minutes of general meeting
The concerned ROC officer will then verify the form and attached documents. After the form is approved, the company’s data will be updated on the MCA portal automatically. The increase in Authorised Share Capital will also be approved.
Special Resolution or Ordinary Resolution?
A special resolution for change in Memorandum of Association (MOA) is required in case of change of name and change of registered office (as governed by section 13 of the Companies Act, 2013). However, for an increase in Authorised Share Capital (which is governed by section 61 of the Companies Act, 2013), passing an Ordinary Resolution is enough.
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