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Increase in Authorized Share Capital
A company needs funds for short-term or long-term requirements. It can issue new shares and infuse more capital to increase its authorized capital. Authorized capital is the maximum no of share capital that a company can issue to its shareholders. Increasing authorized share capital helps bring in more capital! To increase the authorized capital, you need to pass an appropriate Board resolution and amend the capital clause of the Memorandum of Association (MoA).
The Benefits of Increasing Authorized Share Capital
Increases Share Capital: A company can only raise its share capital beyond what it is prescribed in its MOA (Memorandum of Association) if authorized 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 Authorized Capital
• Check provisions of AoA (Articles of Association) to increase Authorized Share Capital.
• If AoA does not permit an 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 Authorized Share Capital?
To Existing Promoters: To increase the authorized 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 Authorized Share 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.