Change in Authorized Capital
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Change in Authorized Capital - An Overview
Each business needs more funds over time to run business. These funds can be required on a long- and short-term basis. A short-term need can be satisfied by taking loans and advances. But for the run, the company will require more funds. For a Private Limited Company, this can be done by increasing the authorized capital of the company. Since the private limited company is governed and regulated under the Company Act to make changes in the structure it is necessary to follow the Act and the rules stated.
While registering the Private Limited Company the authorized and paid-up capital is specified in the MOA of the company. The company can therefore issue new shares within the limit of the authorized capital mentioned in the MOA. If the company wishes to issue more shares than the limit that is specified then amendments need to be done in the MOA.
Guidelines for Increase in Authorized Share Capital
Here are the few guidelines one must know about authorised share capital:
- ₹5 lakhs for including the phrases Hindustan, Bharat, and India in the company name.
- ₹10 lakhs for the use of the phrases ‘Enterprise’, ‘Products’, ‘Business’, and ‘Manufacturing’ in the company name.
- ₹10 lakhs for the use of the phrases ‘Enterprise’, ‘Products’, ‘Business’, and ‘Manufacturing’ in the company name. ₹50 lakhs for the use of the phrases global, intercontinental, continental, Asian, and international in the company’s name.
- Bharat, Hindustan, and India were paid ₹50 lakhs to be the first word in the firm name.
- For employing words like ‘international’, ‘global’, ‘universal’, ‘continental’, ‘intercontinental’, ‘asiatic’, and ‘industry’ anywhere in the firm name, as well as ‘udhyog’ and ‘industry’, the fine is ₹1 crore.
- ₹ 5 Crore if the company name contains the word ‘Corporation’ even once.
Documents Required for Increase in Change in Authorized Capital
The documents must be filed with the MCA within 30 days after obtaining consent from the shareholders for the share capital increase. The standard resolution for private firms is merely SH-7, and MGT-14 is not required.
- Digital signature certificate Online: A copy of a DSC from any authorized director of the company
- Memorandum of Association: A copy of the modified or latest version of the MoA
- Articles of Association: A copy of the modified or latest version of the AoA
- Certificate of incorporation: A copy of the company’s incorporation certificate
- PAN card: A copy of the company’s PAN card.
Post Compliance Steps To Change in Authorized Capital
- Check the provisions of the AoA to increase authorized share capital
- If the AoA does not permit an increase, then the AoA must be modified as per Section 14 of the Companies Act of 2013
- Issue a notice for calling a board meeting to modify the AoA in order to approve the increase in authorised share capital
- Issue a notice for calling an extraordinary general meeting to modify the AoA in order to approve the increase in authorised share capital
- Issue the notice at least 7 days before the board meeting and 21 days before the EGM
What Are the Rules for Change in Authorized Capital
The rules for increasing authorised share capital of a company are as follows:
Check the Articles of Association (AOA): Before increasing authorised share capital, the company should review its AOA to ensure that the procedure and requirements for passing a special resolution are met
Conduct a Board Meeting: The board of directors of the company should convene a meeting to approve the proposal to increase authorised share capital
Pass a Special Resolution: The shareholders of the company should pass a special resolution approving the increase in authorised share capital. The resolution should be filed with the Registrar of Companies (ROC) within 30 days of its passing
Obtain Approval from ROC: The company should file the necessary documents with the ROC, including the special resolution and a copy of the altered AOA to obtain approval for the increase in authorised share capital
Issue New Shares: Once the increase in authorised share capital is approved, the company can issue new shares to raise additional funds.
How Is Authorized Share Capital Determined?
The maximum number of shares that a corporation is permitted to issue to its shareholders is known as the authorised share capital. The MOA contains a reference to the authorised share capital, which is decided upon when the company is incorporated.
The authorised share capital can be determined based on various factors such as the company’s future growth plans, capital requirements, and financial projections. The company’s promoters and directors decide the authorised share capital based on their estimation of the company’s future capital needs.
Subsequently the authorised share capital may be raised by passing a special resolution and submitting the required paperwork to the ROC. The corporation can now issue more shares to its shareholders in order to raise more money thanks to the increase in authorised share capital.
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Frequently Asked Questions (FAQs)
Accounting is the process of tracking, organizing, and analyzing financial information to help businesses make informed decisions. It is important for businesses because it provides insight into financial performance, helps with tax planning, and can help with strategic decision-making.
Bookkeeping involves recording financial transactions, while accounting involves analyzing and interpreting financial data to produce financial statements and provide financial advice. Bookkeeping is the foundation of all accounting services.
Financial statements typically included in accounting services include balance sheets, income statements, and cash flow statements. These statements provide insight into a business’s financial health and performance.
All types of businesses can benefit from outsourcing their accounting services, particularly those without the in-house resources to manage their finances effectively. Outsourcing can also help businesses save time and money.
Businesses should review their financial statements on a regular basis, such as monthly or quarterly, to ensure accuracy and identify any areas for improvement. Reviewing financial statements can also help businesses make informed decisions about future investments or growth opportunities.
Common accounting software programs used by businesses include QuickBooks, Xero, and FreshBooks. These programs can help with bookkeeping, invoicing, payroll, and tax preparation.
Cash-basis accounting records transactions when cash is received or paid, while accrual-basis accounting records transactions when they occur, regardless of when cash is received or paid. Accrual-basis accounting provides a more accurate picture of a business’s financial health.
Common accounting mistakes that businesses should avoid include failing to reconcile bank statements, not tracking expenses properly, and not keeping records up to date.
Common accounting mistakes that businesses should avoid include failing to reconcile bank statements, not tracking expenses properly, and not keeping records up to date.
Accounting services can help businesses save money by identifying areas for cost-cutting and providing insights into financial performance. Accounting services can also help businesses make better financial decisions by providing accurate and timely financial information.
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