Change of Authorized Capital of the Company A Step toward future Expansion
The Authorized share capital/ Share Capital of the Company means a capital up to which a company is authorized to issue shares to existing or new shareholders. Generally, a company required to have funds, from time to time, for its growth and meet its working capital requirement. In case, if a company has to issue shares, either to existing shareholders or to new shareholders, beyond its authorized capital, then in such a scenario it would first be required to increase its authorized share capital by complying the procedure laid down under the Companies Act, 2013.
As per the Companies Act, 2013 which states that a company can increase its authorized share capital by following up the procedure laid down the provisions of section 61, 64 and 13 of the Companies Act, 2013 and the rules made thereunder.
According to the above sections, Authorized share capital can be increased by passing Ordinary Resolution in the General Meeting (Annual General Meeting or Extra Ordinary General Meeting) for alteration of its Memorandum of Association. Every such alteration shall become effective only if registered and recorded by the Registrar of Companies (ROC). Therefore, before raising capital beyond the authorized capital, one has to raise its authorized capital and file necessary form so as to avoid hurdles in raising capital.Let’s discuss the procedure of the same in detail….
A company easily increases its authorized share capital by following up the below-mentioned procedure
- Authorization under Article of Association: It is essential for the Company to check whether the increase in authorization share capital has been authorized under the Article of Association or not. If the answer is “No”, then it would first be required to make alternation under its Article of Association as such authorization is the prior condition for an increase in share capital as per section 61 of the Companies Act, 2013.
- Convene and hold Board Meeting: A company would be required to issue a notice of Board Meeting under section 173 of the Companies Act, 2013 to discuss and take a decision on following below-mentioned agenda items:
- To take approval of Board of Director of the Company for an increase in authorized share capital of the Company.
- Board to decide the date, time and place for holding of Extraordinary General Meeting (EGM) for taking shareholder approval via passing the ordinary resolution for making suitable amendments under the Memorandum of Association as per the requirement laid down under section 61 of the Companies Act, 2013.
- Draft and approve the notice of extraordinary general meeting along with the explanatory statement as per section 102 of the Companies Act, 2013
- Authorize any person (Director/Company Secretary etc) for issue 21 clear days notice of Extra-Ordinary General Meeting (EGM) to its existing shareholders, Directors, and Auditor.
- Holding of Extraordinary General Meeting: the Company would be next required to hold proper extraordinary general meeting and pass the ordinary resolution (approval of at least 51% shareholders) as per the requirement of section 61 of the Company Act, 2013 for increase in authorized share capital and consequence of which alteration in clause V i.e. capital clause of the Memorandum of Association of the Company.
- Filing of SH-7 with ROC: As per the section 64 of the Companies Act, 2013, which state that whenever there is an increase in authorized share capital of the Company under section 61 of the above mentioned Act, it has to intimate the same to the Registrar of Companies (ROC) via SH-7, along with the fee as mentioned in the Companies (Registration offices and Fees) Rules, 2014, within a period of 30 days from the date of passing of ordinary resolution in the Extra Ordinary General Meeting (EGM) with the following attachments:
- Notice of Extra Ordinary General Meeting (EGM);
- A certified true copy of the resolution passed at EGM;
- Altered Memorandum of Association (MOA).
Do we need Special Resolution or Ordinary resolution is enough ??
Some of the people are of the view that we should pass Special resolution rather than Ordinary resolution as it involves alternation in Memorandum of Association and also involves section 13 of the companies act, 2013 which require the alternation of the memorandum of association via special resolution.
Please appreciate that the special resolution for change in Memorandum of Association is mainly required in case of change of name and change of registered office as governed by section 13 of the Companies Act, 2013. However, Increase in Authorized Share Capital is mainly governed by section 61 of the Companies Act, 2013, which is complete regarding the what type of shareholder resolution is required. So in such a scenario, passing an Ordinary Resolution would completely be enough…..