An entrepreneur wanting to register an enterprise should form appropriate protocols that are most appropriate for the company and other co-owners.
And of the critical factors is – determining what is the enterprise’s share capital is and whether one can increase the approved equity in business having a company registration.
The share capital is that portion of the equity of a company that was raised and sold by issuing shares in return of capital (cash or other considerations) to its shareholders. The State stipulates that, to preserve financial decorum, no company can indiscriminately issue shares to raise money. In this end, the share capital approved is the full amount of the share capital legally allowed by the corporation in issue for shareholders.
Process to Increase Authorised Share Capital
Consequently, under the limitations and provisions of Section 61 (Read Sections 13 and 14) of the Companies Act 2013, the company’s permitted share capital can be increased at any time.
Step 1- Verifying approval within the Articles of Association
Section 61 of the Companies Act, 2013 specifies that acceptance in the Articles of Association is required for the expansion of the approved capital bid. The assurance that the necessary provisions are laid down in the Articles is also a prerequisite for the permitted share capital.
If the Articles do not agree to an increase, it is then the responsibility of the Board of Directors to amend them in compliance with Section 14 of the Companies Act, 2013, to require the same before proceeding. A special resolution will change the Article of Association.
Step 2- Board meeting to notify the incidence of EGM
A meeting of the Board of Directors is held to agree to hold an EGM to discuss and vote on the subject of approved share capital raising. When the Board decides the date, place, and time to hold EGM, it has to send a notice to each of its members, shareholders, director, and auditors. They need to vote on the increase of the approved share capital in compliance with Section 101 of the Companies Act 2013.
Also, this notice shall consist of the voting procedure to enact a special resolution to raise the company’s permitted share capital, which shall be included in the explanatory statement under Section 102 of the Company Act.
Step 3- Extraordinary General Meeting
When the imminent EGM has been informed about the held meeting, the question of the increase in approved share capital will be discussed and voted on to send EGM notice. In compliance with Article 61(1)(a) of the 2013 Companies Act, the Ordinary Resolution is passed to increase the company’s permitted share capital.
Step 4- ROC Form documenting
Within 30 days of the passage of the ordinary resolution, Form SH-7, along with the required fees and attachments as specified by Section 64, must be submitted with the appropriate Registrar of Companies ( RoC). In addition to the modified MoA and AoA, the following attachments with e-form SH-7 are required.
- Board Resolution on approved share capital increase;
- Group recommendation for the alteration of the Memorandum of Association’s capital clause;
- The decision of the shareholders adopted in the EGM.
The RoC reviews the forms and the accompanying documents. RoC shall authorize the Authorized Share Capital Increase, where the required conditions are met.
Paid Up Capital
That is the number of the shareholder supported businesses, i.e., the money paid by the shareholders for the shares owned by the shareholders. A paid-up capital cannot be more than the company’s approved capital.
This capital represents funding in a Private limited company and its requirement expand in the market. With the support of paid-up money, a company may raise its finances in the form of the initial public offering (IPO) or an additional problem.
The latest amendment (2015) to the Company Act of 2013 has eliminated a minimum paid-up capital condition previously required for the incorporation of the Private (Rs 1 Lakh) and Public Limited Companies (Rs 5 Lakh). The applicants can now select the capital sum themselves.
Difference between Authorized Capital & Paid-up Capital
Fixed share capital is the sum a corporation will give to the shareholders; paid-up capital is the amount of money paid from the shareholders for the shares distributed to the shareholders.
A share capital paid-up will always be lower than approved share capital.
With the prior approval of the owners, the share capital may be raised at any time.
Authorized Capital: Required capital shall be the maximum capital sum that a corporation is allowed to collect by issuing shares with its shareholders. A business does not have to grant a public subscription to the entire approved capital. It can choose to issue capital according to needs and demand at different stages.
In its memorandum of association (MOA), a corporation has to specify the amount of approved capital.
Paid-up Share Capital: The pay-up value is the sum paid for the shares owned in the company by the shareholders. It is the real fund received by the company from its share issuance. Usually, a company raises funds either as initial public offering or as an additional issue of shares through its paid-up money.
As per the 2013 Companies Act amendments, a minimum paid-up capital of 1 lakh or 5 lakh was not required for a private and public enterprise. You are free to choose your paid-up money as small as Rs. 1000.