Authorized Share Capital Increase - Overview
A company may need to extend its authorized share capital before issuing new equity shares and increasing paid-up capital. Authorized share capital is that the total value of shares a corporation can issue, while paid-up capital is that the total value of shares the corporate has issued. Paid-up capital can never exceed authorized capital. Hence, if an organization having a licensed capital of Rs.10 lakhs and paid-up capital of Rs.10 lakhs would adore to induct new shareholders, it can do so either by:
(a) Increasing authorized share capital and issuing new shares. (or)
(b) Transferring shares from existing shareholders to the new shareholders.
Usually, in most of the cases, new shares are issued and authorized capital is increased.
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Authorized Share Capital Increase Registration Package
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- Announcement of EGM with the descriptive statement
- Duplicate of the resolution delivered at the general meeting of the associates;
- Memorandum of Association (MOA)
- Articles of Association (AOA)
- Last 3 Years ITR with P&L and Balance Sheet
- Resolution for permitting such consolidation
- Credentials in proof of new capital arrangement and class of shares presented consolidated or divided
- Affidavit authenticating the petition
- Bank draft substantiating payment of request fee
- Two additional duplicates of the application
Before commencing the procedures for increasing authorized share capital, verify the AOA to form sure there's enabling provision within the Articles of Association (AOA) particularly with reference to increase authorized share capital. If there are not any provisions for increasing authorized share capital, the corporate must first make changes to the AOA of the corporate.
To increase the share capital first you need to convene a committee meeting by providing notice to the Director. At the committee meeting, obtain approval from the Board of Directors for increasing authorized share capital. Then fix a date, time, and place for conducting an Extra-Ordinary General meeting to get an approval of shareholders for the rise of authorized share capital and making changes to the MOA of the corporate.
On the time, date, and place mentioned on the Notice of Extra-Ordinary General Meeting, conduct the Extra-Ordinary General Meeting and acquire shareholders’ approval for increase of authorized capital. The approval of shareholders for increasing authorized share capital must be within the sort of a standard resolution.
Once the standard resolution is passed at the Extra-Ordinary General Meeting, Form SH-7 must be filed by the corporate within 30 days of passing the standard resolution. alongside Form SH-7, the prescribed government fee for authorized capital must be paid and therefore the following documents must be attached:
- Notice associated with EGM.
- Authorized True copy of Ordinary Resolution.
- Changed Memorandum of Association. (Showing higher authorized capital)
If the procedures for increasing authorized capital are followed as mentioned within the Companies Act and corporations Rules, then the Registrar would approve the filing and increase the authorized share capital of the corporate. The new authorized share capital of the corporate would be reflected on the MCA portal.
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