Benefits of Increasing Authorised Capital
Increase Authorised Capital
A company can raise whatever authorised capital as they decide upon and the same will be mentioned in the MoA with revisions. Hence, increasing authorised capital has an incremental effect on the overall company share capital.
Enhances Borrowing Capacity
With the increase in share capital, the company’s overall net worth also increases. This further enhances the borrowing capacity of the company.
It could invite investments as the same can be easily accommodated if there is enough authorised capital.
How to Increase the Authorised Share Capital of the Company?
In the case of a private limited company, the procedure for increasing the authorised share capital is According to Section 61 of the Companies Act of 2013, a limited company with a share capital may change the capital clause in its Memorandum of Association (MoA) by making an ordinary resolution in a general meeting, provided that its Articles of Association (AoA) grant the firm permission to do so. Within 30 days, a notice of alteration must be submitted in Form No. SH-7 to the ROC. Only when specifically permitted by its articles of association and following member approval by a regular resolution passed at an extraordinary general meeting of the business is a corporation permitted to expand its authorised share capital.
Check the Articles of Association: The first step in increasing the authorised share capital of a company is to check the AoA. It will outline the process for increasing the authorised share capital, including any limitations or restrictions that may apply.
Convene a Board Meeting: The proposal to raise the authorised share capital must be discussed and approved by the company’s board of directors, who must call a meeting. To raise the authorised share capital, the board must adopt a resolution outlining the increase’s dollar value.
Call for an Extraordinary General Meeting (EGM): Once the board has approved the increase in authorised share capital, the company must call for an Extraordinary General Meeting (EGM) of the shareholders. All shareholders must receive notice of the EGM at least 21 days prior to the meeting.
Pass a Special Resolution: At the EGM, the shareholders must pass a special resolution to approve the increase in authorised share capital. A special resolution needs the support of at least 75% of shareholders in order to pass.
File the Resolution with the Registrar of Companies: After the special resolution has been passed, the company must file the resolution with the registrar of companies within 30 days. A certificate of registration of the resolution will thereafter be issued by the registrar of companies.
Issue New Shares: Once the authorised share capital has been increased, the company can issue new shares to its shareholders. The company must follow the process outlined in the articles of association for issuing new shares, including any restrictions or limitations that may apply.
Documents Required for Increase in Authorised Share Capital
The documents must be filed with the MCA within 30 days after obtaining consent from the shareholders for the share capital increase. The standard resolution for private firms is merely SH-7, and MGT-14 is not required.
- Digital signature certificate Online: A copy of a DSC from any authorised director of the company
- Memorandum of Association: A copy of the modified or latest version of the MoA
- Articles of Association: A copy of the modified or latest version of the AoA
- Certificate of incorporation: A copy of the company’s incorporation certificate
- PAN card: A copy of the company’s PAN card.
Types of Capital in a Company
There are four main types of capital in a company:
- Equity capital: This is the money that is invested in the company by the shareholders. It is the most important type of capital for a company, as it provides the company with the funds it needs to operate and grow
- Debt capital: This is the money that the company borrows from lenders, such as banks. Debt capital is usually repaid with interest over a period of time.
- Working capital: This is the money that is used to finance the day-to-day operations of the company, such as paying for wages, rent, and supplies. A combination of equity capital and debt capital usually funds working capital.
- Trading capital: This is the money that is used to buy and sell goods or services. Trading capital is usually funded by debt capital.
The amount of each type of capital that a company needs will vary depending on the size and stage of the company. For example, a startup company will typically need more equity capital than a mature company.
The following are some of the key differences between the four types of capital:
- Equity capital: Equity capital is a permanent source of financing for a company. It does not have to be repaid, and the shareholders do not have to pay interest on it. However, the shareholders are the last to get their money back if the company goes bankrupt.
- Debt capital: Debt capital is a temporary source of financing for a company. It has to be repaid, and the lenders charge interest on it. However, the lenders have a lower priority than the shareholders if the company goes bankrupt.
- Working capital: Working capital is a revolving source of financing for a company. It is used to finance the day-to-day operations of the company, and it is constantly being replenished.
- Trading capital: Trading capital is a revolving source of financing for a company. It is used to buy and sell goods or services, and it is constantly being replenished.
A company’s capital structure is the mix of equity capital, debt capital, working capital, and trading capital that the company uses to finance its operations. The capital structure of a company will vary depending on the company’s financial situation, its risk appetite, and its strategic goals.
