Authorised Capital Change

What is Authorized Capital?

Authorized Capital, also known as Nominal Capital or Registered Capital, refers to the maximum amount of capital that a company is authorized to issue to its shareholders. It represents the upper limit of funds that a company can raise through the issuance of shares. The Authorized Capital is mentioned in the Memorandum of Association (MoA) of a company during its incorporation.

Reasons for Changing Authorized Capital:

1. Business Expansion: When a company plans to expand its operations, it might require additional funds. Increasing the authorized capital allows the company to issue more shares and raise more capital.
2. Attracting Investors: A higher authorized capital can make the company more attractive to potential investors. It provides flexibility for future fundraising.
3. Stock Market Listing: Companies planning to get listed on stock exchanges may need to increase their authorized capital to meet the listing requirements.
4. Mergers and Acquisitions: In cases of mergers or acquisitions, companies might need to adjust their authorized capital to accommodate the changes in ownership structure.

Procedure for Changing Authorized Capital: Changing the authorized capital involves certain procedures and compliance with regulatory authorities. Here are the general steps:

1. Board Resolution:
   • The board of directors must pass a resolution recommending the alteration of the authorized capital. This is usually done during a board meeting.
2. Shareholder Approval:
   • A special resolution must be passed by the shareholders in a general meeting approving the increase or decrease in authorized capital.
3. Filing with ROC:
   • After obtaining shareholder approval, the company needs to file the resolution and necessary documents with the Registrar of Companies (ROC) within 30 days.
4. Payment of Fees:
   • Pay the requisite filing fees to the ROC based on the changes made to the authorized capital.
5. Issuance of New Shares:
   • Once the approval is obtained, the company can issue new shares to existing shareholders or new investors as per the altered authorized capital.

Conclusion:

Changing the authorized capital is a strategic move that requires careful consideration of the company’s financial needs and future plans. It is crucial to follow the legal procedures and obtain the necessary approvals to ensure compliance with regulatory requirements. Companies should assess their capital requirements and make changes judiciously to support their growth and financial objectives.