Understanding Authorized Share Capital

Authorized Share Capital signifies the maximum limit of share capital a company can issue to its shareholders. It’s important to note that a company cannot issue shares beyond this specified limit. Should a company wish to issue shares beyond this ceiling, it is imperative to amend its Memorandum of Association (MOA) as per the provisions of the Companies Act.

Pre-requisites for Increasing Authorized Share Capital

1. Inclusion of a clause for increasing authorized share capital in the Articles of Association (AOA).
2. Mandatory approval from shareholders.

Step-by-Step Procedure for Increasing Authorized Share Capital:

1. Authorization in the Articles of Association (AOA)

The first step is to verify whether the company’s AOA already contains a provision for increasing authorized share capital. This condition is a fundamental requirement as stipulated in Section 61 of the Companies Act. If the AOA lacks this provision, it must be amended by the provisions of Section 14 of the Companies Act, 2013, before proceeding with the increase in authorized share capital.

1. Calling a Board Meeting of the Board of Directors (BOD)

At a board meeting, the Board of Directors should deliberate and approve the following actions:

• The increase in authorized share capital, is subject to obtaining approval from shareholders.
• Setting the date, time, and venue for the Extraordinary General Meeting (EGM) that will seek approval for the increase in authorized share capital.
• Approval of the EGM notice, including the agenda and explanatory statement, which will be sent to all members, directors, and the company’s auditor.
• Authorization of a director or the company secretary to issue the EGM notice.

1. Holding the Extraordinary General Meeting (EGM)

Conduct the EGM on the scheduled day, date, time, and venue, as determined by the board of directors during their meeting. During the EGM, pass a resolution for increasing the authorized share capital through an ordinary resolution.

1. Alteration in the Memorandum of Association (MOA)

Modify the clause related to authorized share capital in the MOA of the company.

ROC Compliance:

A limited company is required to file Form SH-7 with the Registrar of Companies within 30 days of making this alteration. The submission should include the following attachments:

• A copy of the Board Resolution
• A copy of the EGM Ordinary Resolution
• A copy of the EGM Notice along with the Explanatory Statement
• A copy of the altered MOA

By following this structured process, your company can effectively increase its authorized share capital, ensuring compliance with the relevant regulations and requirements.