Increased Authorized Capital
Every business inevitably requires additional capital to sustain its operations, both in the short and long term. Short-term financial needs can be met through loans and advances. However, as a company grows, it may necessitate more significant capital injections. For a Private Limited Company, this can be achieved by augmenting the company's authorized capital. Given that private limited companies operate under the regulations of the Companies Act, adhering to its stipulations and guidelines is crucial when altering the company's structure.
As per Section 2 (8) of the Companies Act, 2013, the term "Authorized Capital" signifies the maximum share capital amount stated in the company's memorandum. The business can operate up to the extent of its authorized capital. If the company intends to enhance its operations by injecting additional funds beyond the initial amount, it must increase its authorized capital, as detailed in this article.
- Before issuing new equity shares and augmenting the paid-up capital, a company might consider augmenting its authorized share capital. The authorized share capital denotes the maximum value of shares a company can offer. On the other hand, the paid-up capital represents the total value of shares the company has already issued.
- The paid-up capital should not surpass the authorized capital. Thus, if a company possesses an authorized capital of Rs.10 lakh and a paid-up capital of Rs.10 lakh but intends to onboard new shareholders, it can achieve this by:
1) Expanding the authorized share capital and issuing additional shares (or)
2) Transferring existing shares from current shareholders to new ones.
- Validate AOA of the Company: Prior to initiating the steps for augmenting the authorized share capital, it's crucial to examine the Articles of Association (AOA) to confirm the existence of a provision related to expanding the authorized share capital. If the AOA lacks such a provision, adjustments to the company's AOA are imperative.
