In the scenario of uncertain cash flow, which is undeniably the most common limitation of many new companies, Equity increase plays a significant role. Increase in equity raises money for the start-up companies and growing businesses. The share capital of a company can be increased by issuing new shares. The best part about equity increase or equity financing is that there is no fixed obligation to pay dividends. Apart from this, it allows the company to share risks and liabilities of company ownership with the new investors. Equity Increase further allows the company to grow or diversify into other areas.
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Minimum Authorised Share Capital Requirement for Various Companies
- Rs. 1 Lakh for OPC
- Rs. 1 Lakh for Private Limited Company
- Rs. 5 Lakh for Public Limited Company
- Not applicable in case of LLP
Procedure of Increasing Authorised Capital of a Company
The 1st step to increase the Authorised Capital involves checking and assuring that Articles of Association of the company contains a provision which allows the company to raise its authorized capital. According to Section 61 of the Companies Act, 2013, authorization in Articles of Association is a prerequisite in order to increase the Authorised capital of the company. In case, there is no such provision then the company has to insert the clause allowing the increase in the Authorised share capital of the Company by alteration of its Articles of Association as per the provision of Section 14 of the Companies Act, 2013.
The 2nd step to increase the Authorised Capital involves calling for a Board meeting. The notice for the meeting is to be issued as per the provisions of section 173(3) of the Companies Act, 2013. Calling a board meeting must include getting consent from directors for increase in authorised capital, setting the appropriate date, time and venue for holding an extraordinary general meeting to get the approval of shareholders for the amendment in Memorandum of Association, giving consent to the notice of extraordinary general meeting followed by the agenda and explanatory statements, permitting the Director or Company Secretary to give the notice for an extraordinary general meeting.
On the other side, 3rd step to increase Authorised Capital includes issuing or informing about the notice of the extra-ordinary general meeting to the Directors, Members and Auditors of the company according to the provisions of Section 101 of the Companies Act, 2013 while the 4th step involves holding extra-ordinary general meeting on due date and passing the significant ordinary resolution under section 61(1)(a) of the Companies Act, 2013.
In the 5th step, the process of ROC form filing is initiated. The form SH-7 is to be filed within 30 days of the passing of ordinary resolution with the related Registrar of Companies. It has to be filed along with the prescribed fees. Apart from this, section 64 mandates that some attachments have also to be attached which includes notice of EGM, certified the original copy of the ordinary resolution and amended Memorandum of Association.
6th step to increase the Authorised Capital involves checking the E-forms and attached documents and approving the increase in authorized share capital by concerned registrar. The step also involves issuing notice for the changed share capital to Registrar. Filing a notice in the provided form with the Registrar is to be done within 30 days of increase if it changes its share capital for the increase in authorized share capital. It has to be filed along with a copy of altered Memorandum and has to be done as per the sub-section (1) of section 61.
It is important to know that no special resolution needs to be passed in order to increase the authorized capital. Alteration in Memorandum of Association is only required if there is an amendment in the specific clause of MOA as directed in Section 13. Moreover, an amendment in capital clause of MOA to increase the authorized capital is governed by Section 61 of the Companies Act, 2013. On the other side, section 61 is silent regarding the nature of the shareholders’ resolution.