Paid-up capital will never exceed authorized capital. But if a company with an authorized capital of Rs.10 lakhs and Rs.10 lakhs paid-up capital decides to attract new shareholders, it can do so either by:
· Increasing authorized share capital and issuing new shares. (or)
· Transferring shares from existing shareholders to the new shareholders.
In most cases, new shares are issued and authorized capital is increased.
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Verify AOA of the company:
Before commencing the procedures for increasing authorized share capital, verify the AOA to ensure there is enabling provision in the Articles of Association (AOA) particularly concerning increase authorized share capital. If there are no provisions for increasing authorized share capital, the company must first make changes to the AOA of the company.
Convene Board Meeting:
Convene Board Meeting to increase the authorized share capital, first, convene a Board Meeting by providing notice to the Director. Obtain approval by the Board of Directors at the Board Meeting to increase authorized share capital. Then set a date, time, and place for holding an Extra-Ordinary General Meeting to seek shareholders’ approval to raise the company’s authorized share capital and make adjustments to the MOA.
Eventually, get the consent of the Company Secretary’s Board of Directors present at the meeting to present the shareholders with notice of the Extra-Ordinary General Meeting. Depending on the approval, submit the Extra-Ordinary General Meeting Notice to all of the Company’s shareholders, directors, and auditor.
Extra-Ordinary general meeting:
On the time, date, and place indicated on the Extra-Ordinary General Meeting Notice, conduct the Extra-Ordinary General Meeting and receive approval from shareholders for the increase of authorized capital. Shareholders’ permission to increase authorized share capital has to be in the form of an ordinary resolution.
File ROC forms:
Once the ordinary resolution is passed at the Extra-Ordinary General Meeting, Form SH-7 must be filed by the company within 30 days of passing the ordinary resolution. Along with Form SH-7, the prescribed government fee for authorized capital must be paid and the following documents must be attached:
- Notice related to EGM.
- Authorized True copy of Ordinary Resolution.
- Changed Memorandum of Association. (Showing higher authorized capital)
If the procedures for increasing authorized capital are followed as mentioned in the Companies Act and Companies Rules, then the Registrar would approve the filing and increase the authorized share capital of the company. The new authorized share capital of the company would be reflected on the MCA portal.
Allotment of shares:
Post the increase in authorized share capital, the paid-up share capital of the company can be increased by issuing fresh equity shares.