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Increased In Authorize Capital

Increase in Authorised share capital

In the lifecycle of a company, growth and expansion are often accompanied by the need for increased financial resources. One way to facilitate this is by increasing the authorized share capital of the company. In India, authorized share capital is the maximum amount of share capital that a company is authorized to issue to its shareholders as per its Memorandum of Association (MoA). This capital forms the ceiling limit for raising funds through equity shares.

Increasing authorized share capital allows a company to issue additional shares to raise more capital, either from existing shareholders or new investors. This is a strategic move that enables the company to scale its operations, invest in new projects, or meet other financial needs. However, the process of increasing authorized share capital involves adhering to the regulations set forth in the Companies Act, 2013, making it essential for companies to follow the correct procedures to ensure compliance.

What Are the Primary Components of Authorized Capital?

Authorized share capital consists of several key components:

  1. Nominal or Face Value of Shares:
    • The nominal or face value is the value assigned to each share by the company. This is typically a small amount (e.g., ₹10 or ₹100) and does not necessarily reflect the market value of the share.
  2. Number of Shares:
    • The number of shares refers to the total quantity of shares the company is authorized to issue under its authorized share capital. For example, if a company’s authorized capital is ₹10,00,000 with a face value of ₹10 per share, the company can issue up to 1,00,000 shares.
  3. Share Capital Amount:
    • This is the total value of the shares that the company can issue, calculated by multiplying the nominal value by the number of shares. The authorized share capital amount sets the upper limit on the company’s equity financing capabilities.

Advantages of Increasing Authorized Capital

Increasing the authorized share capital offers several advantages to a company:

  1. Facilitates Business Expansion:
    • By increasing the authorized capital, a company can raise additional funds required for expansion, such as entering new markets, launching new products, or acquiring other businesses.
  2. Attracts Investors:
    • A higher authorized share capital can attract potential investors by showing that the company has room to issue more shares, indicating a higher potential for growth and investment opportunities.
  3. Strengthens Financial Position:
    • With an increased capital base, the company can improve its financial stability, enabling it to take on larger projects and manage operational risks more effectively.
  4. Enables Strategic Partnerships:
    • Companies can issue additional shares to strategic partners, facilitating mergers, acquisitions, or collaborations that can propel business growth.
  5. Compliance with Future Funding Requirements:
    • As the company grows, its funding needs may also grow. Increasing the authorized share capital ensures that the company can meet future funding requirements without having to seek frequent approvals from shareholders or regulators.

Processes to Increase the Authorized Capital of a Company

Increasing the authorized share capital involves a multi-step process that requires careful adherence to legal formalities. The steps typically include:

  1. Board Meeting:
    • The process begins with convening a board meeting to discuss the need for increasing the authorized share capital. The board of directors must pass a resolution approving the increase and calling for an extraordinary general meeting (EGM) of the shareholders to obtain their approval.
  2. Shareholders’ Approval:
    • An EGM is held where the shareholders vote on the proposal to increase the authorized share capital. A special resolution is passed if the shareholders agree to the increase.
  3. Amendment of the Memorandum of Association (MoA):
    • Once the special resolution is passed, the MoA must be amended to reflect the new authorized share capital. This amendment is necessary to comply with the Companies Act, 2013.
  4. Filing with the Registrar of Companies (RoC):
    • After the MoA is amended, the company must file the necessary forms (e.g., Form SH-7) with the Registrar of Companies, along with the prescribed fee and copies of the resolution passed by the shareholders.
  5. Payment of Stamp Duty:
    • The company is required to pay stamp duty on the increased amount of authorized share capital. The amount of stamp duty varies by state.
  6. Approval from RoC:
    • Once the RoC reviews and approves the documents, the increase in authorized share capital is officially recognized, and the company can proceed to issue additional shares.

Why Choose One Click Business Solutions for Increasing Authorized Capital?

Choosing One Click Business Solutions for increasing your company’s authorized share capital comes with several benefits:

  1. Expert Guidance:
    • Our team of professionals is well-versed in the legal and regulatory requirements for increasing authorized share capital, ensuring that the process is smooth and compliant.
  2. End-to-End Service:
    • We provide comprehensive support throughout the process, from drafting board resolutions and amending the MoA to filing forms with the RoC and ensuring timely approval.
  3. Time Efficiency:
    • Our streamlined approach ensures that the entire process is completed in a timely manner, minimizing delays and allowing you to focus on your business operations.
  4. Transparent Pricing:
    • We offer competitive pricing with no hidden charges, ensuring that you receive value for your investment.
  5. Personalized Solutions:
    • Every business is unique, and we tailor our services to meet your specific needs, providing personalized solutions that align with your business goals.
  6. Ongoing Support:
    • Beyond the process of increasing authorized capital, we offer ongoing legal and compliance support to help your business navigate future challenges.

Conclusion

Increasing the authorized share capital is a vital step for companies looking to expand and raise additional funds for growth. By following the correct legal procedures and working with experienced professionals, companies can ensure a smooth and compliant process. One Click Business Solutions offers expert guidance and end-to-end support, making it easier for businesses to navigate the complexities of increasing authorized capital. Whether you are looking to scale your business, attract new investors, or strengthen your financial position, we are here to help you achieve your goals efficiently and effectively.

Have questions about Private Limited Company?

What is the difference between authorized and paid-up capital?

Authorized capital is the maximum amount of share capital that a company is authorized to issue as per its MoA, whereas paid-up capital is the actual amount of capital raised by issuing shares to shareholders.

How long does it take to increase the authorized share capital of a company?

The process can take a few weeks, depending on the efficiency of the board, shareholders’ meeting, and approval from the RoC.

Can authorized capital be increased without amending the MoA?

No, an amendment to the MoA is mandatory for increasing authorized capital, as it defines the company’s capital structure.

What documents are required to increase the authorized share capital?

Key documents include the board resolution, shareholders’ resolution, amended MoA, and Form SH-7, among others.

Is stamp duty applicable when increasing authorized capital?

Yes, stamp duty is applicable, and the amount varies depending on the state in which the company is registered.

Can a company issue shares beyond its authorized capital?

No, a company cannot issue shares beyond its authorized capital. If additional shares are needed, the company must first increase its authorized capital.

What are the costs involved in increasing authorized share capital?

Costs include filing fees with the RoC, stamp duty, and any professional fees for legal and compliance services.

What happens if a company fails to increase its authorized capital before issuing more shares?

Issuing shares beyond the authorized capital without proper approval is illegal and can result in penalties and legal action against the company.

Can the authorized share capital be decreased after it has been increased?

Yes, authorized share capital can be decreased, but it requires a special resolution passed by the shareholders and approval from the RoC.

Why is it important to consult a professional service provider when increasing authorized capital?

Consulting a professional ensures that the process is handled correctly, avoiding legal pitfalls, ensuring compliance, and saving time and resources.

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