Increasing Capital

Increasing Capital

The capital of a company is divided into units of a fixed denomination. Share refers to only such a unit. section 2 (84) of The Companies Act 2013 defines  “share” means a share in the share capital of a company and includes stock.

Section 2(8) of The Companies Act 2013 defines that “Authorized capital” or “nominal capital” means such capital as is authorised by the memorandum of a company to be the maximum amount of share capital of the company. The authorised share capital is the maximum amount of share capital that a company can issue to its members/ shareholders. Generally, the companies registered with a small authorised capital and increased as per the requirements or conditions imposed by the lender/investors, customers (particularly the government companies and large corporates where the capital and net worth of the suppliers are prescribed and when the company wants to issue the bonus shares). The Companies Act 2013 allows the companies to alter its authorised share capital with certain procedures which are governed by Section 61-64 of the Act along with Section 13 and 14 of the act which governs the alterations to the Chartered Documents being the Memorandum Of Association and Articles Of Association of the company.

Reasons to Increase In Authorized Capital

  • Authorized Capital – The authorised capital of a Company determines the value and number of shares a Company can issue to its shareholders.
  • Paid-up Capital – Paid up share capital of a company is the amount of money for which shares were issued to the shareholder for which payment was made by the shareholder.
  • Authorized Capital – Most promoters incorporate their company with an authorised capital of Rs.1 lakh or Rs.10 lakh and issue shares with a value of Rs.1 lakh or less to founding members.
  • Increasing Capital – The authorised capital of a company can be easily changed by paying additional government fee, as prescribed by the Ministry of Corporate Affairs.
  • Board Approval – The increase in authorised capital of a Company, must be approved by the Board of Directors of the Company.

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