Authorized Capital Increase
Company Authorized Capital Increase
Increasing a company’s authorized capital allows it to issue more shares, thereby raising additional funds for expansion, projects, or other financial needs. To increase authorized capital, the company must pass a board resolution and obtain shareholders’ approval through an extraordinary general meeting (EGM). After approval, the company must file Form SH-7 with the Registrar of Companies (RoC) along with the required documents and fees. The increase in authorized capital provides the company with greater flexibility in raising capital and enhancing its financial capabilities to support growth and development initiatives.
What is Authorized Capital?
Authorized capital, also known as authorized share capital or nominal capital, is the maximum amount of share capital that a company is legally permitted to issue to its shareholders as stated in its memorandum of association. It represents the upper limit on the number of shares the company can allocate and is decided at the time of incorporation.
Authorized capital provides the company with flexibility to issue additional shares in the future for raising capital without requiring immediate issuance. It is different from issued capital, which refers to the actual shares that have been allocated to shareholders. Companies may choose to increase their authorized capital to support future growth, raise funds for expansion projects, or meet other financial needs by following the required legal and procedural steps.
Authorized capital provides the company with flexibility to issue additional shares in the future for raising capital without requiring immediate issuance. It is different from issued capital, which refers to the actual shares that have been allocated to shareholders. Companies may choose to increase their authorized capital to support future growth, raise funds for expansion projects, or meet other financial needs by following the required legal and procedural steps.
Reasons for Increasing Authorized Share Capital
Raising Additional Funds: To generate more capital for business expansion, new projects, or to improve the company’s financial health.
Future Investment: To attract potential investors by offering them new shares, thereby increasing the investment pool.
Business Expansion: To support the growth and expansion of the company by providing more financial resources.
Acquisitions and Mergers: To facilitate acquisitions or mergers by issuing additional shares to the stakeholders of the acquired company.
Debt Conversion: To convert existing debt into equity by issuing new shares to creditors.
Employee Stock Options: To allocate shares for employee stock option plans (ESOPs) as part of employee compensation and retention strategies.
Compliance and Regulatory Requirements: To meet specific legal or regulatory requirements that necessitate an increase in capital.
Enhancing Creditworthiness: To improve the company’s creditworthiness and financial stability, making it more attractive to lenders and investors.
Increasing the authorized share capital provides the company with the flexibility and financial leverage needed to pursue strategic objectives and growth opportunities.
Future Investment: To attract potential investors by offering them new shares, thereby increasing the investment pool.
Business Expansion: To support the growth and expansion of the company by providing more financial resources.
Acquisitions and Mergers: To facilitate acquisitions or mergers by issuing additional shares to the stakeholders of the acquired company.
Debt Conversion: To convert existing debt into equity by issuing new shares to creditors.
Employee Stock Options: To allocate shares for employee stock option plans (ESOPs) as part of employee compensation and retention strategies.
Compliance and Regulatory Requirements: To meet specific legal or regulatory requirements that necessitate an increase in capital.
Enhancing Creditworthiness: To improve the company’s creditworthiness and financial stability, making it more attractive to lenders and investors.
Increasing the authorized share capital provides the company with the flexibility and financial leverage needed to pursue strategic objectives and growth opportunities.
Authorized Capital Increase FAQ's
Companies may increase their authorized capital to raise additional funds, attract investors, support business expansion, facilitate mergers and acquisitions, convert debt into equity, or allocate shares for employee stock options.
The process involves passing a board resolution, obtaining shareholders' approval in an extraordinary general meeting (EGM), and filing Form SH-7 with the Registrar of Companies (RoC) along with the required documents and fees.
Documents typically required include the board resolution, shareholders' resolution, notice of the EGM, altered memorandum and articles of association, and the completed Form SH-7.
Yes, a company can issue shares up to the limit of its authorized capital as needed, but it must comply with all legal and procedural requirements for issuing new shares.