The Essentials of Authorized Capital
It is the authorized capital of a private company that determines the maximum number of shares it can issue. Most start-ups begin with the minimum authorised capital of Rs. 1 lakh, which becomes too little as the business grows. To issue new shares or to raise the Authorised Capital, the capital clause of the Memorandum of Association is amended by passing a special resolution by the board.
Benefits of Increasing Authorized Capital
Increases Share Capital
A company can only raise its share capital beyond what it is prescribed in its MOA (Memorandum of Association) if authorised capital. Hence, increasing authorized capital has an incremental effect on the overall company share capital.
Enhances Borrowing Capacity
With the increase in share capital, the company’s overall net worth also increases. This further enhances the borrowing capacity of the company.
Checklist For Increasing Authorised Capital
- Check provisions of AoA (Articles of Association) to increase Authorised Share Capital.
- If AoA does not permit increase, then AoA must be modified as per section 14 of the companies act 2013.
- Issue notice for calling EOBM (Extraordinary Board Meeting) to modify AoA, for approving the increase in authorized share capital.
- Issue notice at least seven days before the meeting.
How To Issue New Shares To Increase Authorised Share Capital?
To Existing Promoters
To increase the authorised capital and to issue new shares to existing promoters the following steps are required. A board meeting is called for all shareholders, and Form PAS-3 is filed with the Registrar of Companies (RoC) to intimate the allotment of new shares.
To New Shareholders
To issue new shares to new shareholders a valuation report is required, from a certified chartered accountant.
Documents Required to Increase Authorised Capital
The documents must be filed within 30 days after obtaining consent from boards for the share capital increase with the MCA (Ministry of Corporate Affairs). The resolution passed is notified in MGT-14 and notice of increase is filed in SH-7
- Digital Signature Certificate: A copy of a DSC from any authorized director of the company
- Memorandum of Association: A copy of the modified or the latest version of MoA
- Articles of Association: A copy of the modified or the latest version of AoA
- Certificate of Incorporation: A copy of the company’s incorporation certificate.
- PAN card: A copy of the company PAN card.
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