Increase Your Authorized Capital
There are occasions when a business needs money to achieve short- or long-term objectives. It can increase its authorized capital by issuing new shares and injecting additional capital. A company’s authorized capital is the maximum number of shares it can issue to its shareholders.
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How To Increase Your Authorized Share Capital?
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The Essentials of Authorized Capital
It defines the maximum number of shares that a private company can issue. A typical startup requires a minimum of Rs. 1 lakh in funding, which becomes insufficient over time as the business matures. Due to this, the board’s special resolution must issue new shares or increase the Authorized Capital.
The Benefits of Increasing Authorised Capital
Increases Share Capital
Only approved capital can be utilized to expand a company’s share capital over the amount stated in its Memorandum of Agreement (Memorandum of Association). As a result, increasing authorized capital has a cumulative effect on the firm’s total share capital.
Enhances Borrowing Capacity
The Company’s entire net worth grows in tandem with the rise in share capital. This increases the Company’s borrowing capability even further.
Checklist For Increasing Authorised Capital
To raise Authorised Share Capital, check the provisions of the AoA (Articles of Association).
If the AoA does not permit an increase, it must be amended with Section 14 of the Companies Act 2013.
Calling an EOBM (Extraordinary Board Meeting) to amend the AoA to approve an increase in authorized share capital has been announced.
Give at least seven days’ notice before the meeting.
How To Issue New Shares To Increase Authorised Share Capital?
To Existing Promoters
A variety of procedures must be followed to increase a company’s authorized capital and issue additional shares to current promoters. A board meeting is called, and a Form PAS-3 is submitted to inform the Registrar of Companies (RoC) of the allotment of extra shares.
To New Shareholders
A valuation report is required to issue new shares to new shareholders from a certified chartered accountant.
Documents Required to Increase Authorised Capital
The paperwork must be filed with the MCA within 30 days of receiving board approval for the share capital increase (Ministry of Corporate Affairs). MGT-14 is advised of the resolution, and SH-7 is notified of the increase.
- Memorandum of Association: A copy of the most recent version of the MoA, as modified.
- Articles of Association: A copy of the current or modified version of AoA
- PAN card: A copy of the business’s PAN card
- Digital Signature Certificate: A copy of a digital signature certificate from any authorized director of the firm.
- Certificate of Incorporation: A copy of the Company’s certificate of incorporation.
FAQs on Increase Your Authorized Capital
Clause V of the Memorandum of Association specifies the Company's authorized share capital.
If such a provision does not exist, In line with Section 14 of the Companies Act, 2013, the company must change its articles of organization.
Within 30 days after adopting the resolution for raising authorized share capital, Form MGT-14 and SH-7 must be filed with the ROC.
You can't make such a decision by yourself, as a corporation! A company must notify the appropriate board members and shareholders and obtain their permission before making any such decisions.
As soon as the Board of Directors and the Company's shareholders have approved the new Memorandum of Agreement, the Company must create the updated MOA to proceed.
In order to inform ROC of a change, a firm must complete FORM SH-7.
Within 30 days after the resolution, the Company must file Form SH-7.
The Articles of Association's Clause 4 needs to be changed. If the Company does not have the authority to change the AOA, it must be amended by a special resolution. A copy of the order authorizing the modification must be submitted with the Registrar within 15 days of the AOA.
The Memorandum of Association's Clause V must be changed. Any such change in the Memorandum of a company must be notified to the Registrar within 30 days.
Documents such as a copy of the Resolution, an explanation, and a changed Memorandum or Articles of Association must be included.
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