The decision to register a company and determine which business structure is best suited for the business and the co-owners is essential when it comes to deciding what the share capital of the company will be and how we will increase the authorized share capital.
The share capital of a company is the amount raised through the issuance of shares and the sale of those shares for money (cash or other consideration). To maintain financial decorum, the government prohibits companies from issuing shares for capital raising purposes indiscriminately. As a result, authorised share capital is the maximum amount of share capital that a company can legally issue to shareholders.
The process of increasing authorized share capital
The authorised share capital of the company can therefore be increased at any time, in accordance with the restrictions and provisions of section 61 of the Companies Act, 2013.
Step 1- Reviewing the articles of association for approval
The Companies Act, 2013, stipulates that approval in the Articles of Association is a prerequisite to expanding the Authorised Offer Capital. Increasing authorised share capital, therefore, requires verifying that the necessary provisions are spelled out in the Articles.
According with Section 14 of the Companies Act, 2013, in case the Articles do not approve an increase, they must be amended to allow the same before proceeding. A special resolution should be passed to amend the Articles of Association.
Step 2- Notification of the EGM at the board meeting
An EGM will be held to discuss and vote on raising authorised share capital at a board meeting. A notice for the EGM is sent to all members/shareholders, directors, and auditors of the company once the Board has agreed upon the date, place, and time for the same. As per Section 101 of the Companies Act 2013, all members/shareholders will then vote on the issue of raising authorised share capital.
The notice must also contain the voting method for passing the special resolution and an explanatory statement pursuant to Section 102 of the Companies Act.
Step 3- An extraordinary general meeting
During the EGM, following notice of the impending meeting and the meeting properly convened, the matter of increasing authorised share capital is discussed and finally voted upon in accordance with the notice of the EGM. In order to increase the authorised share capital of the company, the Ordinary Resolution under section 61(1)(a) of the Companies Act, 2013 is passed. In order to increase the authorised share capital of the company, the Ordinary Resolution under section 61(1)(a) of the Companies Act, 2013 is passed.
Step 4- Documentation of the ROC Form
As required by Section 64 of the Companies Act, Form SH-7 must be filed with the concerned Registrar of Companies (RoC) within 30 days of the passing of the Ordinary Resolution. Along with the altered MoA and AoA, the following attachments must be submitted with the e-form SH-7:
- An increase in the authorised share capital was approved by the board;
- Memorandum of Association capital clause modification by the Board;
- The EGM passed the shareholders’ resolution.
Forms and attached documentation will then be reviewed by the RoC. When all requirements are met, the RoC will approve the increase in authorized share capital.