Share capital is the most important requirement for a business to get registered and begin operations in India. Equity capital, trade capital, working capital, and debt capital are its primary types. In this blog, we have discussed in detail about the authorised share capital of a company.
Authorized share capital is the capital that the shareholders have decided and declared to invest in the business over a period of time while drafting its Memorandum of Association. It also determines the maximum worth of shares that a company can issue to its shareholders during the same period. In case it desires to issue more shares, it will have to increase the authorised share capital before. The authorised share capital of a business is decided before incorporating it.
How Is Authorised Share Capital Different From Paid-Up Capital?
Unlike authorised share capital, the paid-up capital is the actual amount invested or actual worth of shares held by the shareholders in the business. It is usually less than the authorised share capital. However, in an ideal case scenario, the two can be equal, but the paid-up capital can never exceed the authorised share capital of the company.
The paid-up capital is signed as the ‘subscriber’s capital’ in the MOA. When the amount actually gets paid by the subscribers, it is referred to as paid-up capital.
Companies Amendment Act (2015) has removed the provisions for minimum authorised and paid-up capital for incorporating limited companies, including private, public, and partnerships.
How To Register The Authorised Capital Of A Company?
The authorised share capital of a company is mentioned in the Memorandum of Association of the company. It is submitted to the Registrar of Companies along with the application for incorporation of the company.
How To Raise The Authorised Capital For Your Business?
Authorised share capital of a company can be under Section 61 of the Companies Act, 2013, provided provisions regarding the same are mentioned in the Articles of Association of the business. The altered authorised share capital requires approval from the Board of Directors and shareholders of the company in the form of a Special resolution passed under Section 61 of the Companies Act, 2013.
The detailed procedure for increasing the authorized capital of a business is listed below:
Step 1: Ensure that procedure regarding altering authorised capital is stated in the AOA of the company. If not, you must include necessary provisions before changing the authorised capital.
Step 2: Convene a meeting of the Board of Directors of the company, the notice for which should be sent to the directors 7 days prior to the meeting.
Step 3: At the meeting, pass an ordinary resolution to approve the decision of increasing the company’s authorised capital.
Step 4: Once the decision has been approved by the Board of Directors, an emergency general meeting of the subscribers is called, the notice for which is sent to them 21 days in advance. Other documents sent to the subscribers along with the notice for EGM include an explanatory statement and a copy of the resolution passed at the BOD meeting. The date, time, and venue of the EGM are to be decided at the BOD meeting.
The general meeting can be called at shorter notice as well. However, that will require the approval of shareholders cumulatively holding 95% shares of the company. Others present at the general meeting will also include auditors, trustees, and directors.
Step 5: The shareholders in the general meeting will make necessary amendments to the MOA of the company and pass a special resolution to adopt the same. After the resolution is adopted, the authorised capital stands raised.
Step 6: The next step is to register the raised authorised capital with the ROC for which a Notice of Alteration of Share Capital has to be submitted by filling out form SH-7, within 30 days from the date of passing of the resolution by the subscribers.
The list of documents to be submitted with form SH-7 includes the following:
- A certified copy of the resolution passed at the general meeting of the subscribers, filed in form MGT-14
- Altered copy of MOA
- A copy of AOA
- A copy of the minutes of the meeting.
- If the general meeting has been called at shorter notice, the notice of consent of the subscriber is needed.
Cost Of Raising The Authorised Capital Of A Company
The cost of raising the authorised share capital of a company depends on the current paid-up share capital of the company. The table below shows in detail the government fee for raising the authorised share capital:
| Authorised share capital to be raised | Government fees charged (in Rupees) |
|---|---|
|
A company registered with an authorised share capital of Rs.1 lakh |
5000 |
|
Raise 1 lakhs when the authorised capital ranges between 1 lakhs and 5 lakhs |
4000/lakh |
|
Raise 1 lakhs when the authorised capital ranges between 5 lakhs and 50 lakhs |
3000/lakh |
|
Raise 1 lakh when the authorised capital ranges between 50 lakhs and 1 crore |
1000/lakh |
|
Raise 1 lakh when the authorised capital is beyond 1 crore |
750/lakh |
The slowdown in the production of goods and delivery of services during the pandemic has failed to dampen the optimistic efforts of young entrepreneurs in India. Data from the Ministry of Corporate Affairs states that over 15,000 new businesses have registered themselves with a total authorized capital of 19,033.96 crores, in the month of March alone.
Out of these, 14,926 companies registered themselves as limited companies, clearly indicating their interests in growth and expansion. This has increased their need to frequently raise their authorised capital and register the same with the Registrar of Companies.