Increased Authorized Capital
Every business requires additional capital to sustain its operations, both in the short and long term. Short-term financial needs can be fulfilled through business loans and advances, while long-term growth often demands a higher capital investment. For a Private Limited Company, this can be achieved by increasing the authorized share capital, allowing for greater financial flexibility. Since private limited companies operate under the Companies Act, compliance with regulatory guidelines is essential when modifying company capital or restructuring financial assets.
As per Section 2(8) of the Companies Act, 2013, the term 'Authorized Capital' refers to the maximum share capital amount specified in a company's memorandum of association. A business can issue shares only up to its authorized capital limit. If a company seeks to expand its operations by raising additional funds beyond the initial allocation, it must increase its authorized capital following the prescribed legal procedures, as outlined 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: Before proceeding with the increase in authorized share capital, it is essential to review the Articles of Association (AOA) to verify whether it includes a provision for expanding the authorized capital. If such a clause is absent, amending the AOA becomes necessary to facilitate the capital enhancement process.
