Increase Authorize Capital

What Is Authorised Capital ?

As per Section 2 (8) of the Companies Act 2013, “Authorized Capital” refers to the maximum amount of share capital authorized by the company’s memorandum.

The firm can grow to the extent of the approved funding. The corporation must raise the allowed capital if it needs to grow its business and invest more money than it did at beginning.

Principles for Expanding Authorized Share Capital

• The following are some rules to be aware of while increasing permitted capital:
• An amount of ₹5 lakhs is charged for incorporating the terms Hindustan, Bharat, and India in the company’s name.
• A fee of ₹10 lakhs is applicable for using phrases such as ‘Enterprise’, ‘Products’, ‘Business’, and ‘Manufacturing’ in the company’s name.
• Similarly, a fee of ₹50 lakhs is imposed for incorporating terms like global, intercontinental, continental, Asian, and international in the company’s name.
• Companies choosing Bharat, Hindustan, and India as the first word in their name are required to pay ₹50 lakhs.
• A fine of ₹1 crore is levied for including words like ‘international’, ‘global’, ‘universal’, ‘continental’, ‘intercontinental’, ‘Asiatic’, ‘industry’, ‘Udyog’, and ‘industry’ in the company’s name.
• Additionally, if the term ‘Corporation’ appears in the company name, a penalty of ₹5 Crore is applicable.

Advantages of Raising Authorized Capital

• Flexibility in obtaining funding: Because authorized capital permits corporations to issue additional shares in the future if necessary, it provides them with flexibility in generating capital. Because of this, it is now simpler for businesses to raise capital without needing to change their articles of association in order to increase their authorized capital.
• Resistance to hostile takeovers: An additional defense against hostile takeovers is having a high authorized capital. This is because a hostile acquirer would have to spend a lot of money to buy a sizable number of shares, which would make it more difficult for them to obtain a controlling position in the business.
• Increased potential for acquisitions and mergers: Due to their greater potential for development and expansion, companies with large authorized capital are also more appealing to prospective acquirers. This facilitates corporate mergers and acquisitions, which may be advantageous to all parties.
• More easily drawn in investors: Investors tend to see companies with more authorized capital as more stable and reliable. This is due to the fact that the company’s substantial authorized capital suggests that it may develop and expand in the future.
• Defense against dilution: – Additionally, authorized capital guards against dilution for current shareholders. This is due to the fact that the business is unable to issue more shares than its authorized capital without the consent of the current shareholders and by altering the articles of association.

Documentation Needed to Raise Authorised Share Capital

Once the shareholders have approved the share capital increase, the documentation needs to be submitted to the MCA within 30 days. For private companies, SH-7 is the typical resolution; MGT-14 is not necessary.

• Online Digital Signature Certificate: A DSC copy signed by any authorized director of the company.
• Memorandum of Association: A copy of the updated or most recent version of the MoA.
• Articles of Association: A copy of the updated or most recent version of the AoA.
• Incorporation Certificate: A copy of the company’s certificate of incorporation.
• PAN Card: A duplicate of the company’s PAN card.

How Can Authorised Shares Be Increased?

For private limited companies, increasing authorized share capital follows Section 61 of the Companies Act of 2013. It involves making an ordinary resolution in a general meeting to amend the capital clause in the Memorandum of Association (MoA), subject to permission granted in the Articles of Association (AoA). Within 30 days, Form No. SH-7 must be submitted to the ROC. Expansion of authorized share capital requires explicit permission in the AoA and approval through a regular resolution at an extraordinary general meeting.

• Examining the AOA is the first stage in raising a company’s authorized share capital. It will describe the steps involved in raising the authorized share capital as well as any potential restrictions or constraints.
• The board of directors of the firm has to convene a meeting in order to deliberate and adopt the proposal to increase the authorized share. A resolution specifying the increase’s dollar amount must be adopted by the board in order to enhance the authorized share capital.
• The company is required to convene an Extraordinary General Meeting (EGM) of its shareholders subsequent to the authorization of the increase in authorized share capital by the board. Notice of the EGM must be provided to all shareholders at least 21 days prior to the meeting.
• The increase in authorized share capital requires a specific resolution approved by the shareholders at the EGM. A special resolution cannot be approved unless it receives the backing of 75% of shareholders.
• The corporation has thirty days from the day the special resolution was passed to submit the resolution to the registrar of companies. A certificate of registration for the resolution will then be issued by the registrar of companies.
• After increasing the share capital, the company can give new shares to its shareholders. They have to follow the rules in the articles of association for giving out new shares, which might have some rules or limits.