This article is written by Nitesh Shrivastava, a final year law student pursuing BBA-LLB (Hons. in Corporate and International law) from ITM University, Gurgaon. In this article he writes on a practical guide to change authorised share capital of the company in India. He can be reached at [email protected]

On the verge of starting a new business in India, the promoters while incorporating their private limited company or public limited company have to decide the amount of share capital of the company. Having share capital of the company is one of the most important aspects while incorporating a new setup as it defines the nature of company. The authorised share capital is the maximum amount of shares value the company can allot to its shareholders. It means it is the maximum value of securities that can be legally issued by the company.

The company can issue shares to its subscribers out of the authorised share capital which is called as issued share capital or paid up capital. As per Section 2(84) of the Companies Act, 2013  ‘share’ means share in the share capital of the company including stock. It represents the interest of the shareholder in the company, measured for the purpose of liability and dividend, by the sum of money.[1]

The need of increasing the authorised share capital is due to the prerequisite condition, that the company cannot issue securities to the subscribers more than the authorised share capital of the company. The authorised share capital of company can be increased at any time, after its incorporation, which is governed by section 61 read with section 13 and 14 of the Companies Act, 2013.

The company while performing its business operations may, at later stage, require more funds to flow in the company for expanding its business or, to meet the expenditure requirements that may arise in future, which is not possible without increasing  the authorised share capital of the company. This blog will give you an affluent idea about increasing the authorised share capital of the company.

The clause IV of Article of Association of the company states the authorised share capital clause of the company. It can be read as follows:

“The Authorised Share Capital of the Company shall be such amounts and be divided into such shares as may, from time to time, be provided in Clause V of the Memorandum of Association with power to increase or reduce the capital in accordance with the Company’s regulations and legislative provisions for the time being in force in that behalf…”

Whereas, clause V of the Memorandum of Association actually states the exact monetary value of the authorised share capital of the company, which can be read as follows:

“The Authorised Share Capital of the Company is Rs1,00,000/- (Rupees One Lakh Only) divided into 10,000 (Ten Thousand Only) Equity Shares of Rs. 10/-(Rupees Ten ) each.”

Taking note of these two clauses are very important while increasing the authorised share capital of the company. As while deciding on change of the authorised share capital of the company, the promoters have to see whether the clause IV of Article of Association of the company authorise the company to amend the share capital or not. For instance, after reading the aforesaid clause of Article of Association, one can conclude  that the authorised share capital of the company can be amended as per the rules and regulation of the company and other provisions of the Companies Act, 2013. If the Article of Association does not allow such amendment, then it is mandatory to amend the AOA first to proceed with such alteration as per Section 14 of the Companies Act, 2013. The Article of Association should be amended by a “special resolution” and the alteration of the articles as well as the capital may be effected by a resolution.

Where the Articles merely provides  that “the company may increase its capital” without specifying the procedure, the company can still increase its  authorised share capital. . [2]

Section 61(1)(a)[3]of the companies Act provides that the company can alter its capital clause by way of increase in authorised share capital of the company. This process is not that simple and takes a considerable time as it requires approbation of the Registrar of Companies (ROC) and other filling requirements.

Step by step, we will have a look at the detailed procedure and secretarial practice required to increase the authorised share capital of the company in abridge form.

The following is archetype process which is mandatory to be followed by the promoters/ directors/ management of the company in this regard:-

1. Board meeting to conduct extra ordinary general meeting of the members of the company.

The board meeting is conducted where the board of directors approves to conduct the EGM and a notice regarding the same is  issued. The notice, on the behalf of the board, is issued to each and every member/ shareholder of the company regarding EGM where the member/ shareholder will decide through their vote, the special business transaction for which the EGM will take place.

The notice shall consist of the date, place and time of the EGM. Further, the notice shall consist of the voting method required to pass the special resolution to increase in the authorised share capital of the company and the explanatory statement pursuant to Section 102 of the Companies Act shall be enclosed.

2. Extra ordinary general meeting.

After service of the notice, the extraordinary meeting of the members of the board takes  place where the members of the company shall have right to vote or not to vote in favour of the increase in the authorised share capital of the company. The consent of the member is accorded regarding the alteration in the memorandum of association of the company. The clause V of the MOA will be altered and will be replaced with the new and amended clause. In the same meeting, one of the board member will be authorised to perform all the obligations in this regard.

3. Passing of special resolution.

The company being an artificial person, any decision taken by the company shall be in form of resolution, which  may be defined as an agreement or decision made by the director or members of the company. Under company law, the authorized share capital of the company can be increased at the AGM/EGM of the shareholders by passing of the special resolution.

After  the EGM has taken place, the board members pass a special resolution in the form of ordinary resolution as per section 114 (1) of the Companies Act 2013. The purpose of passing a  special resolution and not ordinary resolution is that any increase in the authorised share capital of the company would come into effect immediately on passing of the special resolution in this behalf.

4. Alteration of the MOA and AOA of the company.

For successful increase in the authorised share capital of the company, clause V of MOA and clause IV of AOA of the company needs to be altered. The old clauses will be replaced with the new clauses along with mentioning the altered capital of the company.

Secretarial procedure to be followed while increase in authorised share capital of the company.

 

Filing of E form SH-7

 Once the special resolution is passed, the company is obliged to give the notice of the special resolution to the registrar of the company as per section 64[4] of the Companies Act, 2013 in the e-form SH-7 within the period of 30 days from passing of such special resolution. The date on which the special resolution is passed is termed as the effective date of increase in the authorised share capital of the company. The stamp duty is required to be paid for increase in such authorised share capital. The stamp duty can be paid electronically.

Filing of E form MGT-14

The e-form MGT-14 being a ministerial act and procedural in nature is required to be filed along with the true copy of special resolution, notice of EGM, explanatory statement within 30 days from passing of special resolution along with the amended MOA and AOA and fee is to be paid as prescribed in the Companies (Registration offices and Fees) Rules, 2014.

The date of filing of MGT-14 form would not constitute the effective date of increase in the authorised share capital of the company.[5]

Section 62 specifically provides the manner in which further issue of capital is to be made. The entire procedure of the further issue has to be made by the same procedure and the company is bound to follow it. In absence of any statutory power, they are governed by Section 179 of the Companies Act and the memorandum and article of association.[6]

To complement the blog with the whole procedure required to increase the authorised share capital of the company the following sample documents of each and every step is affixed for better understanding. The mentioned documents are part of my work while increase in the authorised share capital of a company. The concise table is also provided for better understanding of the procedure. This is a piece of consonant effort from my part for a better understanding of the discussed topic so that it could be consummate while actual practice.

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Apart from the altered MOA and AOA, the following attachments are required to be submitted along with e form SH-7 and e form MGT-14:

ATTACHMENT NO. 1

NOTICE

NOTICE is hereby given that the EXTRA ORDINARY GENERAL MEETING of the members of MY CORPORATION PRIVATE LIMITED will be held at its registered office of the Company at xyz complex on day/month/ year at 1:00 P.M. to transact the following business:

SPECIAL BUSINESS:

 

ITEM NO. 1

1. To consider and if thought fit to pass with or without any modification(s) the following resolution as an Ordinary Resolution:

RESOLVED THAT pursuant to Sections 61, 64 and other applicable provisions, if any, of the Companies Act, 2013 and the rules framed thereunder, the consent of the board of directors of the company be and is hereby accorded, subject to the approvals of shareholders in the General Meeting that the Authorized Share Capital of the Company be and hereby increased from Rs. 1,00,000 /- (Rupees One lakh) divided into 10,000  (Ten Thousand Only) Equity Shares of Rs. 10/- (Rupees Ten only) each to Rs. 3,00,000 /- (Rupees Three Lakhs Only) divided into 30,000 (Thirty Thousand Only) Equity Shares of Rs. 10/- each by creation of an additional 20,000 ( Twenty Thousand only) Equity Shares of Rs. 10/- (Rupees Ten only) each ranking pari passu in all respect with existing Equity shares of the Company.

FURTHER RESOLVED THAT pursuant to Section 13, 61 and 64 of company act 2013 and all other applicable provisions, if any, of the Companies Act, 2013, and the rules framed thereunder, the consent of the board of directors of the company be and is hereby accorded, subject to the approvals of shareholders in the General Meeting for substituting Clause V of the Memorandum of Association with the following.

1. The Authorised Share Capital of the Company is Rs. 3, 00,000/- (Three Lakhs Only) divided into 30,000 (Thirty Thousand only) Equity Shares of Rs. 10/- (Rupees Ten Only) each.”

FURTHER RESOLVED THAT Mr. ABC, Director of the Company be and is hereby authorized to sign and file the necessary documents with the concerned authorities including Registrar of Companies, NCT of Delhi & Haryana.

                                                                                               BY ORDER OF THE BOARD

 Date    : Day/month/year                                                                     HHH

Place  : Alfapur                                                                                   DIRECTOR

             DIN xxxxxx

 

 

 NOTES

• The explanatory Statement, pursuant to Section 102 of the Companies Act 2013, with regard to the Special business mentioned above is enclosed.

• A MEMBER ENTITLED TO VOTE AT THE MEETING IS ENTITLED TO APPOINT A PROXY TO ATTEND AND VOTE INSTEAD OF HIMSELF AND THE PROXY NEED NOT BE A MEMBER. A BLANK FORM OF PROXY IS ENCLOSED WHICH, IF USED, SHOULD BE RETURNED TO THE COMPANY DULY COMPLETED NOT LATER THAT FOURTY EIGHT HOURS BEFORE THE COMMENCEMENT OF MEETING.

 

ATTACHMENT NO. 2

CERTIFIED TRUE COPY OF THE EXPLANATORY STATEMENT FOR ITEM NO. 1

TO INCREASE THE AUTHORISED CAPITAL

The Company is having an existing authorized share capital of Rs. 1, 00,000/- consisting of 10,000 equity Shares of Rs. 10/- each. Since the company would require more funds for expanding its business and meeting its current expenditure it was necessary to raise the authorized share capital of the company from Rs. 1,00,000 /-  to Rs. 3,00,000/- keeping in view the company’s future requirement of Funds.

None of the Directors are in any way concerned or interested in the said resolution except to the extent of their shareholdings in the Company.

TO AMEND THE MEMORANDUM OF ASSOCIATION

In order to reflect the increase authorised share capital of the Company, and in order to conform to the requirements of the Companies Act, 2013, Clause V of the Memorandum of Association of the Company must be amended.

A draft of the amended Memorandum of Association with the following Clause V was tabled for discussion:

“V. The Authorized Share Capital of the Company is Rs. 3,00,000/- (Rupees Three Lakhs only) divided into 30,000 (Thirty Thousand only) Equity Shares of face value of Rs. 10/- (Rupees Ten) each.”

As Per section 13 of Companies Act, 2013, the alteration of the memorandum of association of the Company requires the approval of shareholders. The Board now seeks the approval of shareholders for the same.

None of the Directors are in any way concerned or interested in the said resolution except to the extent of their shareholdings in the Company.

Your Directors hence seek your consent for amending the provisions contained in the Memorandum of Association in the General Meeting by passing of the said resolution as an Ordinary Resolution.

                                                                                               BY ORDER OF THE BOARD

 

Date   : day/month/year                                                                            HHH

Place :  Alfapur                                                                                         DIRECTOR

                DIN xxxxxx

 

 

 

 

ATTACHMENT NO. 3

CERTIFIED TRUE COPY OF THE EXTRACT OF THE RESOLUTION FROM THE MINUTES OF THE EXTRA ORDINARY GENERAL MEETING OF THE MEMBERS OF THE COMPANY HELD ON DAY/MONTH/YEAR, AT 11:00 AM

1. INCREASE IN AUTHORISED CAPITAL :

SPECIAL BUSINESS:

1. To consider, and if thought fit, to pass with or without modification(s), the following resolution as an Ordinary Resolution:

“RESOLVED THAT pursuant to the provisions of Section 61 read with Section 64 and other applicable provisions, if any, of the Companies Act, 2013 (including any amendment thereto or re-enactment thereof) and the rules framed there under, the consent of the members of the Company be and is hereby accorded to increase the Authorized Share Capital of the Company from existing Rs.1,00,000 (Rupees One Lakh) divided into 10,000 (Ten Thousand only) Equity Shares of Rs. 10/- each to Rs. 3,00,000 (Rupees Three Lakhs only) divided into 30,000 (Thirty Thousand Only) Equity Shares of Rs. 10/- each by creation of additional 20,000 (Twenty Thousand only) Equity Shares of Rs. 10/- each ranking pari passu in all respect with the existing Equity Shares of the Company.

RESOLVED FURTHER THAT the Memorandum of Association of the Company be altered in the following manner i.e. existing Clause V of the Memorandum of Association be deleted and the same be substituted with the following new clause as Clause V:

 

1. The Authorised Share Capital of the Company is Rs. 3,00,000/- (Rupees Three Lakhs only) divided into 30,000 (Thirty Thousand only) Equity Shares of face value of Rs. 10/- (Rupees Ten) each.”

 

RESOLVED FURTHER THAT for the purpose of giving effect to this resolution, the Board of Directors of the Company (hereinafter referred to as “Board” which term shall include a Committee thereof authorized for the purpose) be and is hereby authorized to take all such steps and actions and give such directions as may be in its absolute discretion deemed necessary and to settle any question that may arise in this regard, without being required to seek any further consent or approval of the shareholders or otherwise and that the shareholders shall be deemed to have given their approval thereto expressly by the authority of this resolution.”

 

FURTHER RESOLVED THAT Mr. ABC, Director of the Company be and is hereby authorized to sign and file the necessary documents with the concerned authorities including Registrar of Companies, NCT of Delhi & Haryana.

                                                                      

Certified True Copy

For My Corporation Private Limited

HHH

Director

DIN xxxxx

 

The above discussion gives the comprehensive and concise idea regarding the increase in authorised share capital of the company. The procedure above mentioned consist a corollary method which could be used while increase in authorised share capital of the company.

The blog gives a definitive idea of the standard procedure adopted by the professionals while increase in the authorised share capital and is empirical. But it is advisable to take expert advice before consummate the same.

[1] Borland’s Trustee vs. Steel Bros (1901) 1 Ch 279.

[2] Campbell’s case 1873 (3) Ch App 1; Moseley vs. Koffefontein Mines (1910) Ch 382 at p. 389

[3] Power of limited company to alter its share capital

[4] Notice to be given to Registrar for alteration of share capital

[5] Kobian (P) Ltd. V Kobian India (P) Ltd.  (2005) 64 CLA 281

[6] I.T Cube India (P) Ltd vs. I.T Cube Inc (2006) 69 SCL 319 (kar)