Change in Share Capital

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Overview of Change in Share Capital

Updated on December 31, 2022 04:39:28 PM

The amount of capital invested in a company is a critical decision made during its incorporation. As the business grows, the need for additional funds may arise to expand operations, scale up, or restructure. To achieve this, the company may need to increase or change its share capital. Sometimes, the required capital may exceed the authorized capital limit initially set.

Authorized capital refers to the maximum amount of capital for which a company can issue shares to its shareholders. It is specified in the Memorandum of Association under the Capital Clause, as per Section 2(8) of the Companies Act, 2013. To issue more shares, a company must take the necessary steps to increase or change its authorized capital limit. However, it is important to note that a company cannot issue shares exceeding the authorized capital limit under any circumstances.

Meaning of Share Capital

The term “capital” refers to the “Share Capital” of a company, which is divided into a fixed number of shares of a predetermined value. Share capital is essential for companies to operate, as it is used to acquire business premises, stock-in-trade, and meet other business needs.

A company seeking to increase its capital must first check its current Authorized Share Capital. This is because a company cannot issue shares beyond the authorized share capital limit. To issue additional shares, the company must first increase its authorized share capital by amending the Memorandum of Association.

If the Article of Association permits, a company with share capital can modify its share capital. In such cases, the company must follow the procedure outlined in the Companies Act, 2013. To increase or change the share capital, the company must obtain approval from the registrar of companies by filing the required forms.

Meaning of Authorized Capital & Nominal Capital

The provision of section 61 governs the Change in share capital in the organizations, read with section 13 and 64 of the Companies Act 2013. According to Section 2(8) of the Companies Act, 2013, ‘authorized capital’ or ‘nominal capital’ signifies such Capital as approved by the memorandum of a company to be the most considerable measure of the share capital of the organization.

In this way, it is clear that employing the previously mentioned definition, an organization can extend its business up-to the level of authorized Capital. If you need to expand your business by infusion of more funds, at that point first, you need to grow your approved Capital by following a couple of steps, as discussed ahead.

Documents required for General Changes in Share Capital including Annexure- B

Those Are As Follows:-

Announcement of EGM with the descriptive statement;
Duplicate of the resolution delivered at the general meeting of the associates;
Modified Memorandum of Association.
Modified Articles of Association
A valid certified copy of Board resolution for alteration in AOA
A valid certified copy of Board resolution for alteration in MOA
A valid certified copy of Shareholders resolution
Duplicates of audited balance sheets for the past three years;
Resolution for permitting such consolidation or division and providing explanation for the equivalent;
Credentials in proof of new capital arrangement and class of shares presented consolidated or divided;
Affidavit authenticating the petition.
Bank draft substantiating payment of request fee.
The implemented Vakalatnama or Memorandum of appearance with a copy of the Board’s Resolution, whatever is available as per requirement
Two additional duplicates of the application
Any other applicable documents