Increasing your company’s authorised capital is an important decision that can have significant effects on the future of your business. Doing so in India requires a certain strategy and knowledge of the regulations involved in such a process. In this article, we’ll take a look at what increasing authorised capital in India entails and what you need to know for this process. We’ll go through the steps required to successfully increase your company’s authorised capital, as well as the financial and legal implications of doing so.
What is authorised capital?
A company’s authorised capital is the maximum amount of share capital that the company is allowed to issue, as stated in its Memorandum of Association. This amount can be increased by amending the company’s MOA, and requires approval from the shareholders and the Registrar of Companies.
The authorised capital of a company is important because it sets the limit on how much equity the company can issue. If a company wants to raise more money through equity financing, it will need to first increase its authorised capital.
Why would a company want to increase its authorised capital?
There are several reasons why a company might want to increase its authorised capital. One reason could be to issue new shares to raise funds for the business. This could be used to finance expansion plans, new product development, or other investments.
Another reason could be to give existing shareholders a chance to buy more shares, which would increase their ownership stake in the company. This could be done as part of a share repurchase program or to prevent a hostile takeover attempt.
A third reason could be to create a buffer against future dilution of shareholder equity. This could happen if the company needs to issue new shares for any reason, such as to raise additional funds or to compensate employees with stock options. By having a higher authorised capital, the company can issue new shares without reducing the percentage ownership of existing shareholders.
Increasing authorised capital can also have some negative consequences. It can make it more difficult and expensive to obtain financing from banks or other lenders. And if the company issues new shares at a price below the current market price, it can cause dilution of existing shareholders’ equity stakes. So there are pros and cons to consider before increasing authorised capital.
The process for increasing authorised capital in India
The process for increasing authorised capital in India is relatively simple and straightforward. However, there are a few key steps that must be followed in order to ensure the process is completed successfully. You may take help from your efilings expert for the same.
Firstly, a board resolution must be passed by the company’s directors authorising the increase in authorised capital. This resolution must then be filed with the Registrar of Companies (ROC).
Once the ROC has approved the resolution, a notice of the proposed increase in authorised capital must be published in at least two newspapers – one local and one national.
Shareholders of the company will then need to approve the increase in authorised capital at a general meeting. After this approval has been granted, an amendment to the company’s Memorandum of Association (MoA) and Articles of Association (AoA) will need to be filed with the ROC.
Finally, once all of these steps have been completed, the ROC will issue a fresh Certificate of Incorporation reflecting the increased authorised capital of the company. To ensure the process is smooth, choosing to work with an efilings expert can be a safer option.
The benefits of increasing authorised capital
In order to have the funds available to invest in growth and opportunity, companies must have a healthy cash flow. One way to ensure this is by having a high authorised capital.
The authorised capital of a company is the maximum amount of share capital that the company is allowed to issue, as per its Memorandum of Association (MoA). This limit is set by the company’s shareholders during incorporation and can be amended through a special resolution passed at a shareholder meeting.
There are several benefits to having a high authorised capital.
Firstly, it provides the company with flexibility when issuing new shares. For example, if the company wants to raise additional funds through equity dilution, it can do so without needing to first amend its MoA.
Secondly, authorised capital gives shareholders a greater sense of security, as they know that the company has headroom to issue new shares without their approval. Finally, having a high authorised capital can make a company more attractive to potential investors, as it signals that the business is well-funded and has plans for future growth.
Increasing your company’s authorised capital in India is an important step that should be done with the utmost care. It should not be taken lightly and all potential risks must be carefully considered before taking such a decision. Fortunately, there are numerous resources available for entrepreneurs to help them navigate the process correctly and without any issues. By following these steps and working with your efilings expert you can ensure that you have increased your company’s authorised capital in India successfully and legally, allowing you to move forward confidently with your business objectives.