increase authorised share capital

This article on the procedure to increase authorised share capital of a company under the Companies Act, 2013 is written by Aswinisri Narayanan from ILS LAW COLLEGE, PUNE,
also pursuing Diploma in Entrepreneurship Administration and Business Laws from NUJS.

INTRODUCTION:

The capital of a company is divided into units of a fixed denomination. Share refers to only such a unit. section 2 (84) of The Companies Act 2013 defines  “share” means a share in the share capital of a company and includes stock.

Section 2(8) of The Companies Act 2013 defines that “Authorised capital” or “nominal capital” means such capital as is authorised by the memorandum of a company to be the maximum amount of share capital of the company. The authorised share capital is the maximum amount of share capital that a company can issue to its members/ shareholders. Generally, the companies registered with a small authorised capital and increased as per the requirements or conditions imposed by the lender/investors, customers (particularly the government companies and large corporates where the capital and net worth of the suppliers are prescribed and when the company wants to issue the bonus shares). The Companies Act 2013 allows the companies to alter its authorised share capital with certain procedures which are governed by Section 61-64 of the Act along with Section 13 and 14 of the act which governs the alterations to the Chartered Documents being the Memorandum Of Association and Articles Of Association of the company.

PROCEDURE FOR INCREASING AUTHORISED SHARE CAPITAL:

  • Check whether the company prima-facie authorised by the Articles of association to increase the share capital if it does not authorise the proceedings are to be completed with the objective of altering them.
  • To convene the board meeting for enabling the board to call for extraordinary general meeting (if not passed at Annual General Meeting) to get approval from the shareholders for increasing the authorised share capital.
  • Call for an extraordinary general meeting of the shareholders of the company by sending a notice with clear agenda, explanatory statements and the resolutions to be passed to alter the Memorandum of Association and Articles of Association which are to be altered for the purpose of increasing the authorised share capital.
  • Pass the resolutions for increasing the authorised share capital of the company and corresponding alterations in Memorandum of association and Articles of Association by special resolution.
  • Authorise the board to file necessary forms and resolutions with ROC having jurisdiction.
  • Filing the e- form SH7 with Roc by paying the requisite fee.

After consulting the Articles 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 representative 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 a meeting shall specify the place, date, day and the hour of the meeting and shall contain a statement of the business to be transacted at such meeting. [Section 101 of the companies Act].  A statement has to be annexed to notice which specifies about the material facts concerning each item of special business to be transacted at a 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. [Section 102 of the companies ACT]

After the notice, the extraordinary General meeting is convened and the members vote in favour or against increasing the authorised share capital of the company and it is during in this meeting the alteration of memorandum of association takes place.

After holding the extraordinary General meeting, the Members of the board pass an ordinary resolution.

Altering the Memorandum of association and Articles of Association.

Section 61 of the Companies Act, 2013 states about Power of limited company to alter its share capital, sub-clause further states that (1) A limited company having a share capital may, if so authorised by its articles, alter its memorandum in its general meeting to—

  • increase its authorised share capital by such amount as it thinks expedient

A company can increase its authorised share capital by altering the memorandum of association. Section 13of the Companies Act deals with altering the memorandum of association and section 14 of the above-said act deals with altering the articles of association.

Section 13 of the Act states that As provided in Section 61, a company may, by a special resolution and after complying with the procedure specified in this section, alter the provisions of its memorandum.

Clause V of the memorandum of association and clause 4 of the articles of association has to be altered.

Clause V states that ‘The Authorized Share Capital of the company is Rs.1,00,000/- [Rupees One Lacs only], divided into 10,000 Equity Shares of Rs.10/- [Rupees Ten only] each. The minimum paid up share capital of the company is Rs. 1,00,000/- [Rupees One Lacs only].’

Clause 4 of the Articles of association states about increasing the authorised share capital.

If the company is not authorised to amend the articles of association then it has to amend it by passing special resolution according to the Section 14 of the Companies Act, 2013.

A company can alter its articles by passing a special resolution and every alteration of the articles under Section 14 and a copy of the order approving such alteration has to be filed with the registrar with a printed copy of altered articles within a period of fifteen days in a manner prescribed. Alteration of articles will be valid only if its originally in the articles.

Notice to be given to Registrar:

A notice has to be given to the registrar within a period of 30 days of such alteration along with an altered memorandum. If the company and any other officer defaults, it or he shall be punishable with a fine which may extend up to Thousand Rupees for each day during such default or Five Lakh Rupees whichever is Less. [Section 64 of the Companies Act 2013]

Filing e- form SH- 7

Rule 15: For the purposes 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 an order is passed by the Government increasing the authorized capital of the company in pursuance of sub-section (4) read with sub-section (6) of Section 62 or a company redeems any redeemable preference shares, the notice of such alteration, increase or redemption shall be filed by the company with the Registrar in Form No. SH-7 along with the fee.

Purpose of the Form:

Whenever a company alters its share capital/number of members independently or increases 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.

Stamp duty can be paid electronically through the MCA portal and the following documents are to be attached;

  1. Notice of extra ordinary general meeting
  2. Certified true copy of ordinary resolution
  3. Altered Memorandum of association
  4. Altered Articles of association, if any.

 

Filing of e-form MGT-14

Form MGT- 14 has to be filed in accordance with section 117 sub-section (1) and Section 192 of The Companies Act 2013. The provisions of Section 117 also applies to special resolution sub-section 3 clause 1 of Section 117.

A copy of every resolution or any agreement in respect of any matters specified in sub- section 3 along with the explanatory statement under section 102 has to be annexed to the notice calling the meeting in which the resolution is proposed shall be fixed with registrar within 30 days  along with the fees which is specified in Section 403 of the Act.

A copy of resolution which has effect of altering the articles and copy of every agreement referred in sub-section 3 shall be embodied in or annexed to every copy of the articles issued after passing of the resolution or making of the agreement. [Section 117 (1)].

CONSEQUENCE OF NOT FILING THE FORM

According to section 117 (2) If the company fails to file the resolution or the agreement under sub-section (1) before the expiry of the period specified under Section 403 with additional fee, the company shall be punishable with fine which shall not be less than five lakh rupees but which may extend to twenty-five lakh rupees and every officer of the company who is in default, including liquidator of the company, if any, shall be punishable with fine which shall not be less than one lakh rupees but which may extend to five lakh rupees.

Purpose of the form:

A company has to file with the concerned ROC certain Resolutions and agreements. These are filed after passing the resolution at the meeting. The particulars of such resolutions are to be filed along with this form. The e- form has to be filed with ROC within 30 days of passing of the resolution.

 

Attachments:

The following documents are to be attached;

  1. Certified true copy of resolution along with copy of explanatory statement under Section 102
  2. Altered memorandum of association (Mandatory in case any change in MOA).
  3. Altered articles of association

 

FORMAT OF RESOLUTION OF INCREASE IN AUTHORISED SHARE CAPITAL.

RESOLVED THAT pursuant to the provisions of Section 13 and Section 61 and other applicable provisions, if any, of the Companies Act 2013, (Act) and rules made there under (including any statutory modification or re-enactment thereof for the time being in
force), Articles of Association, the consent of the members be and is hereby accorded to increase the authorized share capital of the Company from Rs. XXXXXX divided into XXXXX equity share of Rs. XX, each to Rs. XXXXXX divided into XXXXX equity shares of Rs XX, each, by creation of additional XXXXX Equity Shares of Rs. XX- each ranking pari passu in all respect with the existing Equity Shares of the Company.

RESOLVED FURTHER THAT Board of Directors of the Company be and is hereby authorized to do all acts and take all such steps as may be necessary, proper or expedient to give effect to the aforesaid resolution”

 

REFERENCES:

Bandari Guide to company law and procedures

http://taxguru.in/company-law/filing-eform-mgt14-resolutions.html

https://www.mca.gov.in/MCA21/dca/help/instructionkit/NCA/Form_MGT-14_help.pdf

https://www.mca.gov.in/MCA21/dca/help/instructionkit/NCA/Form_SH-7_help.pdf

https://blog.ipleaders.in/change-authorised-share-capital/

https://www.mycorporation.in/india/increase-authorized-paidup-capital-of-company

 

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