SHARE CAPITAL OF A COMPANY

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A. WHAT IS THE PAID-UP SHARE CAPITAL/SHARE CAPITAL PAID UP/CONTRIBUTED CAPITAL/ PAID IN CAPITAL OF A COMPANY?

Paid-up share capital of a company has been defined under Sub Section 64 of Section 2 of Companies Act, 2013. It means the amount paid by the members of the company against the shares issued to them. The Paid-up share capital is not a borrowing, it is the amount of money a company has been paid from shareholders in exchange for its shares.

B. WHAT IS THE AUTHORISED CAPITAL OF A COMPANY ?

As per Sub section 8 of Section 2 of the Companies Act, 2013, Authorised Share Capital means the maximum amount of capital a company is allowed to have in the form of shares. It can be increased by passing an ordinary resolution by the members of a company. It is the maximum value a company can raise against its shares.

In this Article, we shall discuss the procedure to increase Authorised Share Capital of a company

C. PROCEDURE TO INCREASE THE AUTHORISED SHARE CAPITAL OF A COMPANY

While increasing Authorised Share Capital of a company, you should consider the following three points:

  • Authorisation for increasing the Authorised share capital of the company in Articles of Association.
  • Amendment of Memorandum of Association (MOA) as the capital clause in the MOA shall be changed
  • Increasing the Authorised Share Capital of the company

1.Authorization in Articles of Association

Authorization in Article is a must for increasing the authorized share capital of a company. A company has to make sure that its Articles of Association contain a provision authorizing it to increase its authorized share capital. If Articles does not contain the provision to increase the Authorized capital under a capital clause, then the company should first amend the Article of association as per section 14 of the Companies Act, 2013.

A separate procedure has to be followed to amend Articles of Association. The same has been described in the other Article on www.mrtax.in

2.Convening a Board Meeting

Calling of Board Meeting issue notice in accordance with the provisions of section 173(3) of the Companies Act, 2013, for increasing the Authorized Share Capital and alteration of memorandum of association of the company, to fix the date of Extraordinary General Meeting (EGM) for passing ordinary resolution to increase the authorized share capital and approve notice of EGM along with Agenda and Explanatory Statement to be annexed to the notice of General Meeting as per section 102(1) of the Companies Act, 2013.

Following things shall be approved in the Board meeting convened:

a. In-principal approval of Directors for amendment of the capital clause in Memorandum of Association and increasing the Authorized Share Capital.

b. Fixing date, time and place for holding EGM to pass ordinary resolution by the shareholders for amendment of the capital clause in Memorandum of Association and increasing the Authorized Share Capital.

c. To authorize the Director or Company Secretary to issue Notice of the EGM to all members, directors and auditors as approved by the board in accordance with the provisions of Section 101 of the Companies.

3. Holding Extraordinary General Meeting

Hold the EGM on the due date and pass necessary Ordinary Resolution under section 61(1) (a) of the Companies Act, 2013, to increase the authorized share capital of the company and amendment in the capital clause of MOA.

4. Filing necessary ROC forms:

File SH-7 within 30 days from the date of passing resolution i.e. date of EGM. Concerned Registrar of Companies (ROC) will check the E-forms (SH-7) and attached documents within 30 days from the date of filing the forms. After satisfying himself of the forms and documents so provided, ROC will approve the increase in Authorised Share Capital of the Company.

D. FILING E- FORM SH-7

Whenever a company alters its share capital/number of members independently or increases the share capital by conversion of debentures/loans due to order of Central Government, then a return in form SH-7 shall be filed with the registrar within 30 days of such alteration or increase. The return shall also be filed where the company redeems any redeemable preference shares.

Stamp duty can be paid electronically through the MCA portal and the following documents are to be attached;

  1. Notice of Extraordinary General Meeting
  2. A certified true copy of the ordinary resolution
  3. Altered Memorandum of association
  4. Altered Articles of association, if any.

PAYMENT OF STAMP DUTY

The stamp duty shall be payable electronically through MCA Portal. E form SH-7 contains the particulars of payment of stamp duty based on the state wise stamp rules. The stamp duty shall be paid as on the date of passing ordinary resolution in EGM and the state in which the registered office of the company is situated.

However, there are states for which the stamp duty on increase in authorized share capital cannot be paid online through MCA portal. MCA provided for the state wise stamp duty rules for e form INC-2, INC-7, INC-29, Memorandum of Association (MOA), Articles of Association (AOA), e form SH-7 and e form FC-1. 

Penalty for non-compliance of Section 64

Sub section 2 of section 64 states that where any Company and Officer in default shall be liable for a fine up to Rs. 1000 for each day during which such default continues, or Rs. 5 Lacs, whichever is less.

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