Authorized share capital, also called nominal capital, represents the maximum amount a company can legally raise by issuing shares. The company’s Memorandum of Association (MoA) specifies this figure, and the company can increase it only by following the procedure outlined in the Companies Act, 2013. For companies looking to expand their authorized capital, ensuring compliance with the legal framework is essential, and the expertise of a practising company secretary, particularly in cities like Coimbatore, plays a crucial role in navigating the process efficiently.

Why Increase Authorized Share Capital?

Before discussing the procedure, it’s important to understand why a company might need to increase its authorized share capital:

1. Business Expansion: A company aiming for growth may require additional capital to finance new projects, infrastructure, or expand into new markets.
2. Attracting Investors: To bring in new shareholders or investors, companies may need to issue more shares, which often requires increasing the authorized share capital.
3. Debt Management: Companies sometimes convert debt into equity to avoid high interest costs, necessitating the issuance of additional shares.

A practising company secretary in Coimbatore with expertise in corporate law can ensure smooth execution of the process and compliance with necessary regulations.

Key Terms to Understand

• Authorized Capital: The maximum capital a company is permitted to raise by issuing shares, as specified in the MoA.
• Paid-Up Capital: The portion of authorized capital that has been issued to and paid for by shareholders.
• Issued Capital: The portion of capital offered to shareholders for subscription.

Legal Framework Under the Companies Act, 2013

Section 61 of the Companies Act, 2013 governs the process for increasing authorized share capital. A company is allowed to increase its authorized capital only if the Articles of Association (AoA) provide for it.If the AoA does not allow such an increase, it must first amendment.

Step-by-Step Process to Increase Authorized Share Capital

Here’s a detailed breakdown of the steps to increase a company’s authorized share capital in accordance with the Companies Act, 2013:

1. Review the Articles of Association (AoA) Before taking any further steps, check if the AoA permits an increase in authorized capital. If not, the AoA must be amended by passing a special resolution at a general meeting.
2. Role of a Practising Company Secretary: A practising company secretary will assist in reviewing the AoA and preparing the necessary documentation for amending it.
3. Convene a Board Meeting Once the AoA permits the increase, a board meeting should get convention to discuss the proposal.

• Draft a Board Resolution: A resolution must be passed to approve the increase in capital and to call for an Extraordinary General Meeting (EGM) of shareholders.
• Set the EGM Date: Decide on the date, time, and venue for the EGM.
• Role of a Practising Company Secretary: The secretary will assist in drafting the board resolution and the notice for the EGM.

Issue the EGM Notice A notice of the EGM must be sent to all shareholders at least 21 days in advance. The notice should include:

• The agenda, including the proposal to increase the authorized capital.
• An explanatory statement in accordance with Section 102 of the Companies Act, 2013.
• Role of a Practising Company Secretary: A company secretary can draft and circulate the notice and explanatory statement in accordance with legal requirements.

4. Hold the EGM During the EGM, shareholders will discuss the proposal and, if in agreement, pass an ordinary resolution to increase the authorized capital.
   • Ordinary Resolution: This must get approval by a simple majority of shareholders present and voting.
5. File Form SH-7 with the Registrar of Companies (RoC) After the passing resolution, the company must file Form SH-7 with the RoC within 30 days.
6. Documents Required:
   • Copy of the board resolution.
   • A copy of the resolution adopted at the EGM.
   • Amended MoA (if applicable).
7. Filing Fees: Fees vary depending on the amount of increased authorized capital.

Role of a Practising Company Secretary: A company secretary will ensure Form SH-7 is filed within the deadline, and it is necessary that all documents are properly submitted.

Alter the Memorandum of Association (MoA) If the MoA needs updation to reflect the increased authorized capital, submit altered MoA to the RoC along with Form SH-7.

Post-Increase Compliance

After increasing the authorized share capital, the company must:

1. Update statutory registers: Update the Register of Members, Register of Shares, and other statutory registers.
2. Issue share certificates: Provide share certificates to shareholders if new shares are issued as part of the increase.

Conclusion

Increasing authorized share capital is an essential step for companies looking to grow, raise funds, or manage debt. While the process is simple, it is essential to follow legal requirements strictly.

Engaging a practising company secretary in Coimbatore can help streamline the process. And ensure full compliance with the Companies Act, 2013. This make it easier for companies to achieve their goals, whether expanding, attracting investors, or restructuring debt.