Every organization needs to procure capital to execute their day to day operations or accomplish their long-term goal. Credit and loans are enough to cater to the short term needs of the company. Meanwhile, the long-standing requirement seeks more capital. When it comes to the private company, such demand can open up an opportunity to increase the company’s authorized share capital. Since every private entity come under the radar of Company Act, any alteration in the structure will force them to conduct their action as per Act and rules.
The inclusion of the paid-up & authorized capital in the MOA is mandatory, especially at the company registration time. The company has the authority to issue new shares within the limit of paid-up and authorized capital. However, if the company is willing to roll out more shares than the given threshold, it has to make relevant MOA changes. Before we elaborate on this topic any further, let’s get to the fundamental first.
What is the authorized capital?
The maximum limit of the share that a company can share to the shareholders is known as authorized capital. Under no conditions, the company can surpass this specified limit. However, that doesn’t mean that the company is not entitled to violate this condition. Henceforth, if the company is looking forward to rolling out more shares to the shareholder, they need to do some relevant alteration in MOA as per the Companies Act.
Pre-requisites of increase in authorized capital
- A clause that supports an increase in authorized capital must be specified articles of association.
- The approval from the Shareholders.
Procedure to increase the authorized share capital of a company
Vetting of AOA and MOA
A company should determine its AOA and MOA in the context of authorized capital. If the issuing of shares is likely to surpass the specified limit in MOA, then the company must crank up its authorized capital.
Before this intentional increment, the company must determine the legality of the matter and ensures that everything complies with the norms of association of the company. Amending the AOA is one of an alternative to change such provision.
Alteration of AOA
To alter the AOA, the company must avail authorization from the shareholders in a general meeting or AGM. Any changes made in the Article of Association must be filed with MCA in the timespan of one month from the date of resolution. After the successful alteration of AOA, the company can move forward and follow the required procedures to serve the purpose.
Holding Board Meeting
The company cannot make such decisions on their own. They have to notify the relevant board members along with shareholders and get their approval. The meeting should be held via prior notification, shared with all shareholders as per the Company Act provision. The company must specify the date and time for the EGM or AGM. A Director of the company is accountable for filing all the relevant forms with the MCA.
Hold Shareholders Meeting
The company must organize the Annual General Meeting on the specified time and date to get approval on such critical matters. Such matters should be resolved through ordinary resolution in the meeting.
Intimation to the ROC
As soon as the company gets the board member’s approval, a company will draft the revised MOA to proceed further. A company must notify about the same via filing the SH-7 form. The form has to file within 30 days from the date of resolution. The document that needs to go along with the SH-7 form is mentioned below.
- Board resolution (copy) for alteration in AOA
- Board resolution (copy) for alteration in MOA
- Notification regards AGM/EGM
- Shareholders resolution (copy)
- Altered AOA (copy)
- Altered MOA (copy)
Once MCA gives the green signal to the company with their approval, the MOA and AOA can be easily altered. The company needs to consolidate the relevant MOA and AOA changes and display them on its official website, if any.
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What is MOA and AOA?
MOA stands for Memorandum of Association meanwhile; AOA is abbreviated as Articles of Association. Both these documents play a crucial role in displaying the company’s vital info company to its shareholders and other stakeholders.
MOA provides the following info to its shareholder’s
- Registered office address
- The clause regarding limited liability
- Minimum paid-up capital
- Share capital of the company.
In short, it shows the connectivity of the company with the outside world.
AOAs are essential documents that need to be submitted when the enterprise decided to consolidate with the Registrar of Companies (ROC). MOA, in conjunction with AOA, is known as the Constitution of the Company.
To sum up, it’s all up to the company to whether or not to increase authorized share capital. However, under no circumstances, the company entitled to serve this purpose without the intervention of its board members and MCA’s approval. The company must comply with all the mandatory provisions while executing such action. Don’t forget to get in touch with us, if in case you need any assistance. Your doubts are important to us and we will try to resolve them in an intuitive and swift manner.
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