India: How to increase or enhance Authorized Capital in an Indian Company

 

Authorized Capital is known to be the upper limit of the capital that a company is allowed to raise via its share’s sale.

Authorized share capital may be divided into:

Issued Capital is that category of capital that a company grants time to time
Paid-up Capital is the amount company received from the shareholders in exchange for the shares issued.
Subscribe Capital is that category of capital which is in a way backed/sponsored by the members of the company.

The company’s memorandum usually consists of the ‘capital clause’ that denoted the company’s share capital authorised along with its various classification. Out of this share of capital, the company is not liable to grants any shares to their respective subscribers until it has been done on the recommendation of the Board of Directors. It then requisites the approval of shareholders. The Provisions of the Companies Act, 2013 and the guidelines mentioned in it clearly talks about the entire mechanism to enhance the authorized capital.

Procedure:

Authorisation in Articles: The articles should have the validating provisions for changing the authorised capital share. This is so because the Companies Act highlights that for expanding the authorised capital share, authorisation in the articles is a mandatory pre-condition.
Calling of Board Meeting: Notice for convening a board meeting containing the following agenda items shall be issued:

To seek directors’ approval to boost share capital.
Extra-ordinary GM is scheduled to seek the shareholders’ approval through ordinary resolution for changes in the ASC’s clause.
To approve the notice of EGM along with the agenda as per the Companies Act.
To authorize the director/ company secretary to issue a notice of the EGM as approved by the board.

Notice of the EGM to be issued to all the members, directors and the auditors of the company under the provisions of the Companies Act.
Holding of General Meeting: The EGM shall be held on the due date and a necessary ordinary resolution shall be passed, for an increase in the authorized share capital of the company.
ROC Form Filing:

Form is required to be filed with the ROC in a time period of thirty days.
The company has the right to file a notice in the set form as mentioned within a period of 30 days of the expansion in the authorised capital share of the company.

 

For further information, please contact:

Gautam Khurana, Managing Partner

India Law Offices, New Delhi

e: g.khurana@indialawoffices.com

t: +91 11 24622216

 

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