Compliances

Alteration in Capital of Company

The authorised capital of a Company determines the number of shares a Company can issue to its shareholders. An increase in authorized capital might be required for issuing new shares and/or inducting more capital into the Company. The initial authorised capital of the Company is mentioned in the Memorandum of Association of the Company and is usually Rs. 1 lakh. The authorised capital can be increased by the company at anytime with shareholders approval and by paying additional fee to the Registrar of Companies.

Types of Alteration of Share Capital

As mentioned in Section 61 of the Companies Act, 2013 there are different types of alteration of Share Capital are as under:

1. Increase in Authorised Share Capital;
2. Consolidation and division all or any of the Share Capital into shares of larger amount than existing Share;
3. Convert all or any of its fully paid-up shares into the stock and re-convert that stock into the fully paid-up shares of any denomination;
4. Sub-divide its shares or any of them, into the shares of smaller amount than is fixed by the memorandum the proportion between the amount paid and the amount if any, the unpaid amount on each reduced share shall be the same as it was in the case of share from which the reduced share has been derived;
5. Cancellation of shares which at the date of passing of the resolution in that behalf, have not been taken or agreed to be taken by any person and diminish the amount of its share capital by the number of shares so canceled (not be deemed as Reduction of Share Capital).

Documents required:

• Board Resolution
• Alteration in MOA and AOA

Reasons to Increase in Authorized Capital

Paid-up Capital

Paid up share capital of a company is the amount of money for which shares were issued to the shareholder for which payment was made by the shareholder.

Increase Capital

The authorised capital of a company can be easily changed by paying additional government fee, as prescribed by the Ministry of Corporate Affairs.

Authorised Capital

Most promoters incorporate their company with an authorised capital of Rs.1 lakh or Rs.10 lakh and issue shares with a value of Rs.1 lakh or less to founding members.

Board Approval

The increase in authorised capital of a Company, must be approved by the Board of Directors of the Company.

Procedure for the alteration of share capital

• Convey the Board Meeting with respect to that issue the Board Meeting Notice at least 7 days before the date of Board Meeting
• Hold the Board Meeting and pass the resolution for the alteration of Share Capital subject to the approval of the Shareholder Meeting.
• For convening the Shareholder Meeting, fix the date, day, time, and venue and authorize a Director or any other person to send the notice to the Members.
• Issue the Notice of Shareholder Meeting at least 21 days before the date of the Shareholder Meeting. The shorter notice of Shareholder Meeting can also be called if the consent of atleast 95% of such part of paid-up capital of the Company has given the consent for the same.
• Hold the Shareholder Meeting, pass the special resolution for the same with the majority consent of the Shareholder.
• After passing the Resolution, file the Form SH-7 within 30 days from the passing of the Ordinary resolution.

Penalty:

If a Company fails to comply, then such Company and every officer who is in default shall be liable for a penalty of rupees One Thousand for each day during which such default continues or rupees Five Lakh whichever is less.

Conclusion

If the Company wants to issue the shares then it is mandatory that the existing Authorized Share Capital of the Company must increase up to the extent it required to issue the shares of the Company. Therefore it is mandatory to amend the Share Capital clause in the Memorandum of Association of the Company. Only change in paid up capital does not require alteration in article and memorandum of company.