Increase Authorized Capital

Authorized Capital Increase

Increase in authorised capital of upto Rs.10 lakhs.

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Increase Authorised Share Capital

Each business needs more funds over time to run business. These funds can be required on a long- and short-term basis. A short-term need can be satisfied by taking loans and advances. But for the run, the company will require more funds. For a Private Limited Company, this can be done by increasing the authorized capital of the company. Since the private limited company is governed and regulated under the Company Act to make changes in the structure it is necessary to follow the Act and the rules stated.

While registering the Private Limited Company the authorized and paid-up capital is specified in the MOA of the company. The company can therefore issue new shares within the limit of the authorized capital mentioned in the MOA. If the company wishes to issue more shares than the limit that is specified then amendments need to be done in the MOA.

Authorized Share Capital increase

A company may need to increase the authorized share capital before it is issuing new equity shares and increasing the paid-up capital. As authorized share capital is the total value of the shares a company can issue. The paid-up capital is the total value of the shares of the company that have been issued.

The Paid-up capital does not exceed the authorized capital. Hence, if the company has authorized capital of Rs.10 lakh and paid-up capital of Rs.10 lakhs would like to induct new shareholders then it can be done by:

  • Increasing the Authorized share capital and issuing new shares (or)
  • Transferring shares from the existing shareholders to the new shareholders.

How to increase the authorized share capital of the company?

Verify AOA of the Company

Before starting with the procedures for increasing the authorized share capital it is necessary to verify the AOA to ensure that there is a provision in the Articles of Association referring to the increase of the authorized share capital. If there is no such provision then the company must first make changes to the AOA of the company.

Note: Most of the AOA’s have the provision for increasing the authorized share capital of the company.

Convene a Board Meeting

It is necessary to convene a Board meeting by providing notice to Director to increase the authorized share capital of the company. At the Board meeting, it is necessary to obtain approval from the Board of Directors for increasing the authorized share capital.

After this whole procedure, a date should be fixed to conduct an Extra-ordinary General meeting to obtain the approval of the shareholders for increasing the authorized share capital and make changes to the MOA of the Company.

At last get the approval of the Board of Directors, the company secretary who is present at the meeting to present the notice of Extraordinary general meeting to the shareholders. Basing the approval, the notice of extraordinary general meeting should be presented to all the shareholders, directors, and auditors of the company.