Increase in Authorized /Paid-up capital
To run a business, each company requires more funds over time. These funds may be needed in the long and short term. Loans and advances can be used to meet a short-term need. However, the company will require additional funds for the run. This can be accomplished for a Private Limited Company by increasing the company’s authorized capital. Because the private limited company is governed and regulated by the Company Act, it is necessary to follow the Act and the rules stated in order to make changes to the structure.
The authorized and paid-up capital of a Private Limited Company is specified in the company’s Memorandum of Association (MOA) when it is registered. As a result, the company can issue new shares up to the authorized capital specified in the MOA. If the company wishes to issue more shares than the specified limit, amendments to the MOA must be made.
What is the definition of authorized capital?
“Authorized Capital,” as defined by Section 2 (8) of the Companies Act of 2013, is the capital that is authorized by the company’s memorandum to be the maximum amount of the company’s share capital.
The company can expand its operations up to the authorised capital limit. If the company needs to expand its business by injecting more funds than initially, it must increase its authorized capital by following the steps outlined in this article.
Increase in Authorized Share Capital
Before issuing new equity, shares and increasing paid-up capital, a company may need to increase its authorized share capital. The total value of the shares a company can issue is known as authorized share capital. The total value of the company’s issued shares is known as the paid-up capital.
The authorized capital is not exceeded by the paid-up capital. If a company has an authorized capital of Rs.10 lakh and a paid-up capital of Rs.10 lakh, it can induct new shareholders by:
- increasing the authorized share capital and issuing new shares (or)
- Shares are transferred from existing shareholders to new shareholders.
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Necessary Documentation
Board Resolution approving an increase in authorized capital and notifying an Extraordinary General Meeting of the Company
An ordinary resolution accepting such increase in EGM/AGM
Alter Memorandum of Association of the Company, incorporating the increase in authorized capital
File Form MGT 14 if AOA is altered
Notice of the EGM along with an explanatory statement explaining the requirement of increasing the capital;
Pass special resolution if AOA needs to be amended to authorize a company for an increase of share capital
File Form SH 7 for an increase in authorized capital
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How to increase the authorized share capital of the company?
- Check the Company’s Articles of Association: Before beginning the procedures for increasing the authorized share capital, check the Company’s Articles of Association to ensure that there is a provision in the Articles of Association that refers to the increase of authorized share capital. If such a provision does not exist, the company must first make changes to its AOA.
Note that most AOAs include a provision for increasing the company’s authorised share capital.
- Call a board meeting.
To increase the company’s authorised share capital, a Board meeting must be called by giving notice to the directors. Obtaining approval from the Board of Directors for increasing the authorised share capital is required at the Board meeting.
Following this procedure, a date should be set for an Extraordinary General Meeting to obtain shareholder approval for increasing the authorised share capital and making changes to the Company’s Memorandum of Association.
Finally, obtain approval from the Board of Directors and the company secretary present at the meeting to distribute the notice of the Extraordinary General Meeting to the shareholders. The notice of extraordinary general meetings should be sent to all of the company’s shareholders, directors, and auditors based on the approval.
- General Meeting Extra-Ordinary
Organize an extraordinary general meeting and get shareholder approval to increase the authorized share capital at the time, date, and location specified in the notice.An ordinary resolution must be passed by the shareholders to approve the increase in authorized capital.
- Submit ROC Forms
After the ordinary resolution is passed at the Extraordinary general meeting, the company must file Form SH7 within 30 days of the ordinary resolution being passed. The required government fee for the authorized capital must be paid, as well as the documents listed below.
- Notice of Extraordinary General Meeting
- Authorized True Copy of Ordinary Resolution
- Modified Memorandum of Association (Which depicts the higher authorized capital)
If the procedure outlined in the Companies Act and the Companies Rules is followed to increase the company’s authorised capital, the registrar will approve the filing and raise the company’s authorised share capital. The MCA portal will reflect the new authorised share capital.
- Shares are distributed.
The company’s paid-up share capital can be increased by issuing new equity shares once the authorised share capital has been increased.
FAQs On SSI MSME Registration
Any entrepreneur having valid Aadhaar Number can apply for MSME Registration Online.
Provisional registration is valid for a period of 2 years from the date of its Issue. In case Unit is not set up for two years, an applicant may apply afresh and obtain a new provisional registration. Permanent registration is granted for a lifetime.
It is computed as per the MSMED act and rules provided their under, but while computing the value of plant & machinery their original value is to be taken into consideration.
The SSI Registration is only needed to avail subsidies and benefits. It is voluntary. Due to the various benefits attached to it, it is advisable for SMEs to obtain the same.
A Micro, small and medium Enterprises can violate the regulations in the following ways which will make it liable for de-registration:
a) It crosses the investment limits.
b) It starts manufacturing any new item or items that require an industrial license or other kinds of statutory license.
c) It does not satisfy the condition of being owned, controlled or being a subsidiary of any other industrial undertaking.
In the interest of the environment, no physical copy of MSME Certificate will be issued. The government believes in paperless work.
At present, Aadhaar Number is mandatory for issuance of MSME Certificate.
Yes, you can very well do so by visiting Government website. It is free of cost.
For detailed narration, please visit here.
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