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Every Company irrespective of size, type of business, category of business, etc. will have its share capital classified under various types in its financial statement.
However, the Companies Amendment Act, 2015 have omitted the provision of minimum paid-up capital requirement for the Companies but the requirement of authorised share capital still exists.
For every company, the capital structure would be broadly divided into two parts:
- Authorised Share Capital, and
- Paid-up Share Capital.
It is the maximum amount of the capital for which shares can be issued by the Company to shareholders.
The Authorised capital is mentioned in the Memorandum of Association of the Company under the heading of “Capital Clause”. The authorised capital is decided before the incorporation of the company.
The Authorised capital can be increased at any time in future by following necessary steps as required by law.
It is the amount of money for which shares of the Company were issued to the shareholders and payment was made by the shareholders.
At any point of time, paid-up capital will be less than or equal to authorised share capital and the Company cannot issue shares beyond the authorised share capital of the Company.
With the Companies Amendment Act 2015, there is no minimum requirement of paid-up capital of the Company. That means now Company can be formed with even Rs.1,000 as paid-up capital.
In case of any change in the authorised and paid-up share capital, the Registrar of Companies (ROC) needs to be updated.
Step 1 To check whether Articles of the company allow for the change in authorised capital
The Articles of Association is the document that contains the rules and regulations regarding the internal working of the company. So, before any action can be taken regarding the increase/reduction in the authorised capital, the Articles of Association must be verified to check whether a provision exists that allows for a change in the authorised capital of the company. If the provision exists, then the process becomes simplified. However, if the provision does not exist, then the Articles of Association must be amended first as set out under Section 14 of the Companies Act, 2013 (“Act”), and then only can the company proceed with the alteration of authorised capital.
Step 2 Conduct a Board Meeting
- Notice to be sent to the directors regarding the agenda of the meeting at least 7 days prior to their respective registered addresses.
- At the Board Meeting, pass a Board Resolution to call for an Extraordinary General Meeting and issue notice pursuant to the provision of Section 101 of the Act, where the altered clause on authorised capital in the Memorandum of Association can be presented for approval by passing an Ordinary Resolution. The proposed amendment shall be in accordance with the provisions as set out under Section 60 of the Act.
- Notice to be given to the shareholders regarding the particulars of the meeting, including the agenda, date, time and place of the meeting.
- The notice must specify the method of voting to be adopted for the passing of the resolution at the Extraordinary General Meeting.
- Notice of the Extraordinary General Meeting is to be issued to all of the following:-
– Directors – Shareholders – Auditors
- The notice of the EGM has to be given not less than 21 days prior to the date on which the EGM is to be held. However, a shorter notice period can be given if and only if the consent is given by not less than 95% of the members who are entitled to vote at the meeting. The
consent has to be obtained either through:– Writing – Electronic mode
Step 3 Holding the Extraordinary General Meeting
Once the meeting is in session, the matter of the increase in the share capital is presented forth. Voting then takes place in a predetermined manner to come to a conclusion regarding the matter. Once the approval has been obtained, and the resolution is passed, the explanatory statement to the same is attached, and the increase in the Authorised Capital is made.
Step 4 Filing with the Registrar of Companies
In less than 30 days of the resolution being passed, a company must file eForm SH-7 and eForm MGT – 14 (if applicable) along with the prescribed fees with the Registrar.
This form has to be filed with the RoC first within 30 days of passing the respective resolution. The form is to be filed on the MCA portal, with the following details:
- Details of the company, including its CIN.
- Purpose concerning which the form is being filed.
- Date of dispatch of the notice.
- Date of passing the resolution.
- Details regarding the resolution.
- Digital Signatures and DINs wherever necessary.
The following attachments are to be provided
– Notice of the EGM along with the Explanatory Statement as per Section 102.
– Certified copy of the resolution passed in the EGM.
– Copy of the new MOA (change made in the Capital Clause).
– Copy of the new AOA (provision for the increase in authorised share capital).
This form has to be filed with the RoC within 30 days of passing the respective resolution. The objective of this form is to intimate the Registrar regarding the details of the increase in the authorised capital. The form is be filed on the MCA portal, with the following details:
a)Details of the company, including its CIN.
b)Type of resolution.
c)Date of the meeting
d)Service Request Number (SRN) of Form MGT – 14 already filed.
e)Details regarding amount of original authorised share capital and amount of new authorised share capital.
f)Details regarding the breakup of the additional share capital.
g)Particulars regarding the Stamp Duty Fees paid.
h)Digital Signatures and DINs wherever necessary.
The following attachments are to be provided:
– A certified true copy of the resolution for the alteration of capital.
– Copy of the new MOA (change made in the Capital Clause).
– Copy of the new AOA (in case of alteration to include provision for the increase in authorised share capital).
– Any other optional attachment, if any.
The forms must be submitted within the time period stipulated in order to avoid any penalties or subsequent punishment wherein the company as well its officers will be held liable.