Procedure for Increasing Authorized Share Capital
In the companies act 2013, the procedure for the increase in the authorized share capital has been governed in sections 61 and 64 of the companies Act 2013. In any case related with the share capital in the process of increasing the paid up share capital of the company by issuing the fresh equity shares, the first step that needs to be taken into consideration is the increase in the authorized share capital of the company. The procedure for increase in share capital is listed below;
Verify AOA of the company: Before commencing the procedures for increasing authorized capital, verify AOA to ensure there is enabling provision I reference to increase authorized share capital. If there are no provision of increasing authorized share capital, then the Article of Association shall have to altered.
Procedure for alteration of Article of Association: For alteration of Article of Association, the company shall have to take the approval of the shareholders in the General meeting being held by company. The general meeting can be either Annual General Meeting or Extraordinary General Meeting.
The documents required for the alteration of the Articles of Association are follows:
1 Notice of Annual General Meeting of Extra Ordinary General Meeting, 21 days notice is required to be given to shareholders before AGM.
2 Copy of the shareholders’ resolution.
3 Altered Articles of Associations.
To give effect to the resolution, the company needs to file the Form MGT- 14 within 30 days of passing the shareholders’ resolution.
Convene Board Meeting: To increase the authorized share capital, first, convene a Board meeting by providing notice to the director. At the Board Meeting increasing authorized share capital. Then fix a date, time and place for conducting an Extra-ordinary General Meeting to obtain an authorized share capital and making changes to all shareholders, Directors and Auditor of the company.
After consulting the Article of Association, the company has to convene the board meeting. A notice for general meeting has to be given every member of the company, legal representatives of any deceased member or the assignee of an insolvent member, the auditor or auditors of the company and every director of the company not less than 21 days before the commencement of meeting. The notice can be given in writing or any other electronic mode prescribed. Provided that a general meeting may be called after giving a shorter notice if consent is given in writing or by electronic mode by not less than ninety five percent of the members entitled to vote at such meeting.
Every notice of the meeting shall specify the place, date, day and the hour of meeting and shall a contain a statement of the business to be transacted at such meeting. A statement has to be annexed to notice which specifies about the material facts concerning each item of special business to be transacted at general meeting, such as the nature of concern or interest, financial or otherwise to every director and the manager every other key managerial personnel; and their relatives.
After the notice, the extra ordinary general meeting is convened and the member vote in favor or against increasing the authorized share capital of the company and it is during in the meeting alteration of memorandum of association takes place.
Hold Extra Ordinary Meeting: On the time, date and place mentioned on the Notice of Extra-ordinary meeting, conduct the Extra General Meeting increase of authorized capital. The approval of shareholders for increasing authorized share capital must be in the form of an organizer.
Notice to the registrar:
A notice has to given to the registrar within a period of 30 days of such alteration along with altered memorandum. If the company and any other officer defaults, it or he shall be punishable with a fine which may expand up to the thousand rupees for each day during such default or Five Lakh Rupees whichever is less.
Filling of Form SH-7:
The next and final step in the process to the file the Form SH-7 within 30 days of passing the ordinary resolution. Along with the Form SH-7, the attachments that need to be attached along with the form are as follows;
- Notice for the Board meeting.
- Board resolution for an increase in authorized share capital and amendment in capital clause of MOA.
- Notice EGM.
- Shareholders’ resolution of EGM.
- Amended copy MOA and AOA.
For the purpose of sub-section (1) of section 64, where a company alters its share capital in any manner specified in sub-section (1) of section 61, or order is passed by government increasing the authorized capital of the company in pursuance of sub-section (4) read with sub-section (6) of section 62 or company redeems any redeemable preference shares, the notice of shares, increase or redemption shall be filled by the company with registrar in Form No. SH-7 along with fee.
Purpose of the Form:
Whenever a company alters its share capital/ number of members independently or increase the share capital by conversion of debentures/ loans due to order of Central Government, then a return shall be filed with the registrar within 30 days of such alteration or increase. The return shall also be filed where the company redeems any redeemable preference shares.
Consequences of filling Form:
According to section 117 (2) If the company fails the file the resolution or agreement under sub-section (1) before the expiry period specified under section 403 with additional fee, the company shall be punishable with fine which shall be less than five Lakh rupees but which may be extend to twenty five lakh rupees and every officer of the company who is in default, including liquidator of the company.
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