Change in Capital

During the initial stages of incorporation, promoters face a crucial decision regarding the capital investment in the company. As the business gains momentum, there may arise a need for expansion in operations, size, scale, or structure. To materialize this vision, additional funds may be required, ultimately leading to an increase in the company’s share capital. At times, this capital requirement may exceed the initially authorized capital limit. The authorized capital denotes the maximum amount of capital for which the company can issue shares to shareholders.

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    As outlined in Section 2(8) of the Companies Act, 2013, the authorized capital limit is specified in the Memorandum of Association under the Capital Clause. To issue more shares, a company can take necessary steps to increase the authorized capital limit. However, it is crucial to note that under no circumstances can a company issue shares exceeding the authorized capital limit.

    Procedure for Modifying the Authorised Capital

    Conduct a thorough examination of the Articles of Association

    The Articles of Association serves as the repository of rules and regulations governing the internal functioning of the company. Therefore, before initiating any action related to the augmentation or reduction of authorized capital, a careful review of the Articles of Association is imperative. This review ensures the presence of a provision that sanctions alterations to the company’s authorized capital.

    If such a provision is present, the process is streamlined. However, in the absence of such a provision, the Articles of Association must undergo amendment, adhering to the guidelines stipulated in Section 14 of the Companies Act, 2013 (“Act”). Only after this amendment can the company proceed with the modification of the authorized capital.

    Initiate a Board Meeting

    • Conducting the Board Meeting Directors must be notified of the meeting agenda at least 7 days in advance, sent to their respective registered addresses.
    • During the Board Meeting, pass a resolution to convene an Extraordinary General Meeting (EGM) and issue notices per Section 101 of the Act. At the EGM, present the altered clause on authorized capital in the Memorandum of Association for approval through an Ordinary Resolution, adhering to Section 60 of the Act.
    • Shareholders must be notified of the meeting particulars, including agenda, date, time, and venue, specifying the voting method for the EGM resolution.
    • Notices for the EGM must be sent to Directors, Shareholders, and Auditors at least 21 days before the EGM date. However, a shorter notice is permissible with consent from at least 95% of eligible voters, obtained in writing or electronically.

    Conducting the Extraordinary General Meeting

    Upon commencement of the meeting, the topic of augmenting the share capital is introduced. Voting proceeds systematically to reach a resolution on the matter. Once approval is secured, and the resolution is ratified, an explanatory statement is appended, and the Authorized Capital is augmented.

    Submission to the Registrar of Companies

    Within a span of 30 days from the resolution’s approval, the company is obligated to submit eForm SH-7 and eForm MGT – 14 (if applicable), accompanied by the stipulated fees, to the Registrar.

    Form MGT – 14: This form should be initially filed with the RoC within 30 days of passing the relevant resolution. The filing takes place on the MCA portal and requires the following particulars:

    Company details, including its CIN.
    Purpose for filing the form.
    Dispatch date of the notice.
    Resolution approval date.
    Resolution details.
    Inclusion of Digital Signatures and DINs where necessary.
    The following attachments are requisite:
    Notice of the EGM along with the Explanatory Statement pursuant to Section 102.
    Certified copy of the resolution sanctioned in the EGM.
    Copy of the updated MOA (reflecting changes in the Capital Clause).
    Copy of the revised AOA (encompassing provisions for the increase in authorized share capital).

    Form SH – 7: Submission of this form to the RoC must occur within 30 days from the approval of the relevant resolution. The purpose of this form is to notify the Registrar about the specifics of the increase in authorized capital. The filing takes place on the MCA portal and necessitates the inclusion of the following details:

    Company details, including its CIN.
    Type of resolution.
    Date of the meeting.
    Service Request Number (SRN) of Form MGT – 14 already submitted.
    Details of the original authorized share capital and the new authorized share capital.
    Breakdown of the additional share capital.
    Particularsof the paid Stamp Duty Fees.
    Inclusion of Digital Signatures and DINs where necessary.
    The following attachments are obligatory:
    A certified true copy of the resolution for the capital alteration.
    Copy of the updated MOA (reflecting changes in the Capital Clause).
    Copy of the revised AOA (if altered to include a provision for the increased authorized share capital).
    Any other optional attachment, if applicable.

    Submission of these forms within the prescribed timeframe is essential to avoid penalties or subsequent repercussions, where both the company and its officers may be held accountable.

    In addressing the complexities associated with capital adjustments for your company, Sadique and Ameen Associates position themselves as adept professionals poised to provide comprehensive assistance. Conducting thorough reviews of your Articles of Association, orchestrating Board Meetings, and facilitating Extraordinary General Meetings, our aim is to streamline the procedural complexities.Entrust Sadique and Ameen Associates with the strategic arrangement of your company’s capital evolution, where our steadfast commitment to precision and proficiency remains paramount.