Changes in authorized share capital

When a company is in its incorporation stages, one of the most important decisions that have to be made by the promoters is the amount of capital to invest in the company.

As the business begins to pick up, the company may look to expand its operations, expand in size, scale or structure. To make that dream a reality, it may require the pumping in of more funds into the company, basically increasing the share capital of the company. Sometimes, the amount of capital required might surpass the limit of the authorized capital at the time. The Authorized capital is the maximum amount of capital for which the Company can issue shares to the shareholders.

As per Section 2(8) of the Companies Act, 2013, the Authorized Capital limit is specified in the Memorandum of Association under the Capital Clause. A company may take the necessary steps required to increase the Authorized capital limit in order to issue more shares, but it cannot issue shares exceeding the authorised capital limit in any case.

Procedure to change authorized capital

• Perform a read-through of the Articles of Association
• Board meeting to be conducted
• Holding the Extraordinary General Meeting
• Filing with the Registrar of Companies: Form MGT-14 and Form SH-7

Changes in paid-up share capital

Increase of Paid-up share capital is also popularly known as Further issue of Share Capital. Paid-up capital is the amount of money a company has been paid from shareholders in exchange for shares of its stock. A company that is fully paid-up has sold all available shares and therefore the need of increasing paid up share capital comes in. Every business either big or small in size requires funds to run the business or to meet their business operations. If a Company desire to increase the paid-up share Capital through existing Shareholders, can do so via very easy means through Right Issue laid down under section 62 of the Companies Act 2013 which is most reliable and feasible for the Private Limited and if desire to raise from outsiders (who is not an Existing shareholder of the Company) then can raise through the Private Placement. In a Private Limited Company, we choose the very hassle-free compliance route so that no any extra burden comes in the way to run the business.

Top reasons to Increase the Paid-up Share Capital

• Investor Funding- In the fast-moving market of India, where many Startups come forwards as a competitor are constantly updating their products, a business needs to spend funds or money on developing and marketing new products e.g., to do marketing research on time basis and test new products in "pilot "mode therefore takes investment through Private Placement from Angel Investors which causes increasing paid-up share capital.
• For the need of Working Capital- Sufficient working capital is a key aspect of any company's financial health, and not having enough working capital can have a serious impact on the future of your business.
• Purchase of Assets- Growing your business and increasing sales often requires you to purchase assets such as new machinery or vehicles.
• For starting new business along with Existing New businesses that are still in the start-up stage will need funding to get off the ground. While most directors will use their own funds to start the business, very few manage to entirely self-fund the company to profitability, and will therefore have to seek external funding. There are a variety of options for external start-up funding, including bank loans, borrowing from family and friends, equity investment from a business angel, crowdfunding, and funding grants;
• Growth of the business- Increase sales, expand your range of products or services, move into new premises, hire more staff, or expand internationally, a paid-up capital growth can help.

Overview The members of the Company at any time may Increase Paid-up Share Capital of the Company. The mode of Increasing the Share Capital of the Company can be either through issuing the shares to the existing shareholders of the company or either to the other persons whether it is a Public Limited Company or Private Limited Company. But the Private Limited Company carries the restriction to issue shares to the General Public as the Private Limited Company cannot issue shares to more than 200 People.

In a Private Limited company, we mainly opt following ways to increase its paid-up Share Capital-

• Issuing securities through right issue and
• Bonus issue
• Private Placement
• Preferential Allotment
• Conversion of loan or debenture in to share capital

A Private Company can either issue shares to its existing shareholders by way of rights issue or by way of giving them bonus shares or it can issue securities through private placements for outsider Investors. Normally in Private Limited Company quick access to get funds from from Directors and Relatives of the Directors in the way of loan to Company which can also convert into the Shareholders fund subject to prior approval (before taking the loan) of Shareholders in the way of Special Resolution and file the required form MGT-14 with the ROC. When Company in future is not able to repay back the loan amount then that time Company can convert this loan into the Equity Share Capital and raise the Paid-up Share Capital. It is mandatory to pass the special resolution at the time of acceptance of Loan with the term of conversion into equity share capital in future. There is no need to Alter the MOA for the increase of Paid-up Share Capital.

Documents Required to Increase Paid-Up Capital Some Important Key Notes while Increasing the Paid-up Share Capital of the Company-

• At very First need to Check whether Articles of Association of Company contain a provision authorizing it to increase its Paid-up Share Capital.
• If you did not find such provision then before increasing paid-up share capital, amend its articles to include such authorization under section 14;

Once Allotment done or capital Increased must verify the following-For Increase in Issued/Subscribed Capital Check Whether: Resolution approving increase in issued/subscribed capital is filed with MCA?

• E-Form PAS 3 (Allotment of shares) was filed with proper attachments with MCA?
• Share certificates issued? [Format of Share Certificate Form No. SH.1]
• Entries made in the Register of members (MGT-1)?