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Increase in Share Capital of Company

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Increase in Share Capital of Company

The sum of money invested in a business to launch and maintain it is known as capital. No firm, whether it is a sole proprietorship, private limited company, or public company, can begin or expand without capital. In fact, in a limited liability partnership (LLP), the members provide start up capital. The shareholders must subscribe for shares at the time of the company's registration in order to invest the money in the business; this sum of money is known as paid-up capital. All businesses must decide on a capital amount at the time of registration, and that sum must then be deposited into the business's bank account. However, following registration, this sum may be changed as needed after that.

Types of Capital In Company

Authorised capital: Section 2(8) defines authorized capital, also known as nominal capital, as the maximum amount of share capital of a business that is permitted under the company's memorandum of association. However, it can be raised whenever necessary throughout the company's existence. Section 61, Section 64, and the rules enacted thereunder outline the process for raising the authorized capital.

Issued capital: This is the amount that the business issues under the approved capital. In order to raise money, the business may issue all of the authorized capital or just a portion of it. Authorized capital is always equal to or less than issued capital. Unissued capital: This is the remaining allowed capital that the business has not issued.

Subscribed capital: This is the portion of issued capital that shareholders have agreed to accept.

Called up capital: The portion of subscribed capital that the business calls up for payment is known as  called up capital

Paid-up capital: This is the portion of up capital that the shareholders pay the business in relation to the shares they have purchased.

Increase in Authorised Shares of the Company

Over time, each company requires more funding to operate. Both short-term and long-term needs may arise for these money. Loans and advances can be used to meet temporary needs. However, the business will eventually need more money. This can be accomplished for a Private Limited Company by raising the authorized capital of the business. The Company Act governs and regulates the private limited company, thus any modifications to its structure must adhere to the Act and its regulations.

The total prospective worth of shares that a company may issue is known as authorized share capital. Paid-up capital, on the other hand, is the true worth of shares that shareholders have completely issued, subscribed for, and paid for. The company's paid-up capital cannot be greater than its authorized share capital. As a result, a company has two choices if its paid-up capital exceeds its authorized capital and it wants to accept additional shareholders:

Either issue additional shares after increasing its authorized share capital, or Make it easier for existing shareholders to transfer their shares to new ones.

Process of increase in authorised share capital

Examine the Articles of Association in detail.

The rules and regulations pertaining to the internal operations of the corporation are contained in the Articles of Association. Therefore, the Articles of Association must be examined to see if there is a clause allowing for a change in the company's authorized capital before any action is done to enhance or decrease it. The procedure is made simpler if the clause is present. However, in the event that the provision is absent, the company can only proceed with the modification of authorized capital after amending the Articles of Association in accordance with Section 14 of the Companies Act, 2013 ("Act").

Board Meeting to be conducted

The directors must receive notice of the meeting's agenda at least seven days before their respective registered addresses. In accordance with Section 101 of the Act, the amended clause on authorized capital in the Memorandum of Association may be submitted for approval by passing an Ordinary Resolution. To do this, the Board should adopt a Board Resolution calling for an Extraordinary General Meeting and issuing notice. The proposed amendment must comply with the guidelines outlined in Section 60 of the Act.. The shareholders will receive notification of the meeting's specifics, such as the agenda, date, time, and location. The voting procedure that will be used to pass the motion at the Extraordinary General Meeting must be specified in the notice. Auditors, Directors, and Shareholders should get notice of the Extraordinary General Meeting.

The EGM notice must be sent out at least 21 days before the scheduled date of the meeting. However, if and only if at least 95% of the members who are eligible to vote at the meeting agree, a shorter notice time may be granted. It is necessary to gain consent in writing or electronically.

Calling Extraordinary General Meeting

The issue of raising the share capital is brought up after the meeting has begun. After that, voting is conducted in a specified way to reach a decision on the issue. Following approval and resolution passage, the increase in Authorized Capital is made and the accompanying explanatory statement is attached.

Submitting an application to the Registrar of Companies

1. Form MGT-14: Within 30 days of passing the relevant resolution, this form must be submitted to the RoC. The following information must be entered into the form and submitted via the MCA portal:
-Company information, including CIN.
-The reason for which the form is submitted.
-The notice's dispatch date.
-The date the resolution was passed.
-DINs and digital signatures where required.

The EGM notice and the Explanatory Statement in accordance with Section 102 must be sent as attachments.
-A certified copy of the EGM's resolution.
-A copy of the amended Capital Clause in the new MOA.
-A copy of the updated AOA, which includes a clause allowing for an increase in authorized share capital.

2. Form SH-7: After the relevant resolution has been passed, this form must be submitted to the RoC within 30 days. This form's purpose is to notify the Registrar of the specifics of the authorized capital increase. The following information is entered into the form and submitted on the MCA portal:
-Company information, including CIN.
-Resolution .
-The meeting date.
-The Form MGT-14 Service Request Number (SRN) has already been submitted.
-Information about the initial authorized share capital and the updated authorized share capital amounts.
-Details about how the extra share capital was divided up.
-Details on the paid stamp duty fees.
-DINs and digital signatures where required.

The attachments listed below must be given:
-A certified accurate copy of the capital alteration resolution.
-A copy of the amended Capital Clause in the new MOA.
-A copy of the updated AOA, if it has been modified to include a clause allowing for an increase in authorized share capital.
-Any further optional attachments that may exist.
- To prevent penalties or subsequent punishments, for which the company and its officers will be held accountable, the forms must be turned in within the allotted time.

Increase in Paid Up Share Capital of Company

Businesses may eventually need to raise their paid-up capital as they expand. The sum of money supplied by a company's shareholders is known as paid-up capital. Since it aids in raising money for operations and expansion, it is an essential part of a business's financial health. What paid-up capital is, why it matters, and how businesses might raise it will all be covered in this article.

The sum of money that shareholders have contributed to a business is known as paid-up capital. In exchange for money or other assets, a company issues shares to its stockholders when it is created. The paid-up capital of the business is the sum of the proceeds from the sale of these shares. This money is listed in the equity section of the company's balance sheet.

The maximum amount of capital that a business is permitted to issue is known as authorized capital, which is distinct from paid-up capital. Generally speaking, authorized capital is more than paid-up capital, and businesses may issue more shares to raise paid-up capital.

Several ways to increase paid up share capital

Businesses can raise their paid-up capital in a number of ways. These consist of:
1. The issuance of more shares
Issuing more shares is the most popular method of raising paid-up capital. This can be accomplished by issuing new shares to new investors through a public offering or by providing new shares to current owners through a rights issue.
2. Changing Reserves to Paid-up Capital
Converting reserves into equity is another way for businesses to raise their paid-up capital. In this case, a portion of the company's reserves or retained earnings are moved into the balance sheet's equity section.
3. Capitalizing Debt
By capitalizing on debts, paid-up capital can also be increased. By doing this, the company's debt is converted into equity, raising its paid-up capital.
4. Buyback of Shares
Additionally, a business can raise its paid-up capital by repurchasing its own stock. As a result, there are fewer outstanding shares and the value of the remaining shares rises, increasing paid-up capital.

Process Of Increase In Share Capital Of Company

i) Get the board resolution ready.
To increase the paid-up capital, call a board meeting and approve a resolution. as well as approving the resolution to call the general assembly. In order to complete this resolution, the board will give a director permission to submit all necessary paperwork to the registrar.

ii)Obtain a Special Resolution
Call a general meeting and approve a special resolution to increase paid-up capital by the issuance of additional shares.

iii)Form Submission
Within the allotted time, submit Form PAS 3 and MGT 14 to the Registrar of Companies (ROC) for approval.

iv)Distribution of Shares
Give the shareholder shares within 60 days of the capital being deposited into the business's account.

  • FAQ
1. What is authorized share capital?

The most share capital that a business can issue to shareholders is known as authorized share capital. The company's Memorandum of Association (MOA) lays it out. Shareholders must approve any increase in authorized share capital.

A company must take the actions listed below in order to raise the authorized share capital:

-Call a board meeting to discuss the proposed capital increase.
-To approve the increase by passing a special resolution, call an AGM or EGM general meeting.
-Use the MCA portal to submit the special resolution (Form MGT-14) to the Registrar of Companies (RoC).
-Notify the Registrar of the increase in authorized share capital by filing Form SH-7.

The MCA site requires the following forms to be submitted:
-To inform the Registrar of the increase in authorized share capital, submit Form SH-7.
- To submit the special resolution approved by the shareholders for the capital increase, use Form MGT-14.

The increased capital is used to compute the fee for raising the authorized share capital. It is paid when Form SH-7 is submitted via the MCA portal. The charge schedule, which varies based on the amount of capital increase, is accessible on the MCA website.

i) Go to www.mca.gov.in, the MCA portal, and log in.
ii) Go to "MCA Services" > "e-Forms" > "SH-7" (Notice of increase in share capital).
iii) Fill out the form with the company's information, the resolution number, and the amount of authorized capital both before and after the increase.
iv) Make the required payment.
v) Send the form to the Registrar of Companies for approval.

Assuming all paperwork are in order, the Registrar of Companies typically takes three to five working days to process the filing. However, depending on the volume and the completeness of the forms provided, the timing may change.

Yes, a company is allowed to raise its authorized share capital more than once, but each time it does so, the required steps must be followed, such as getting shareholder permission and filing with the MCA.

-A company's authorized share capital is the most it is permitted to raise in accordance with its memorandum of association (MOA).
- What the business actually got in exchange for the shares that were offered to shareholders is known as  paid up share capital.

The MCA site requires the following forms to be submitted:
i) Form MGT-14: To submit the special resolution passed for raising paid-up share capital .
ii) Form PAS-3: To give the specifics of the distribution of shares following the increase in paid-up capital.

It is possible for a company to raise its paid-up share capital more than once as long as it follows the right process each time. A special resolution, filing with the RoC, and revising the company's share allocation details are necessary for any capital increase.

Form PAS-3 is used to file the details of share allotment with the Registrar of Companies (RoC) after an increase in paid-up share capital. It needs to be submitted within 30 days of the share allocation date.

The company may be subject to compliance issues, including legal repercussions, if the increase in paid-up capital is not properly registered with the MCA. It is crucial to adhere to the prescribed procedure and make sure that all required filings are made.

When raising its paid-up capital, a business can, in fact, issue shares to new investors (through a private placement or public offering) or to current shareholders (through a rights issue).

No, unless the authorized share capital is increased first, a company cannot raise its paid-up share capital over the authorized share capital, which establishes the upper limit for the paid-up capital of the company.