The authorised share capital of a company represents the maximum amount of share capital that a company can issue to its shareholders. Over time, a company may need to increase its authorised share capital to issue new shares for reasons such as funding expansion projects or acquiring assets. The process for increasing authorised share capital is governed by regulations in many countries. This article will outline the generic procedure to increase authorised share capital, but it’s essential to refer to specific regulations that apply in your jurisdiction.
- Definition: Understanding what authorised share capital means.
- Importance: Why might a company need to increase its authorised share capital?
2. Preliminary Steps
a) Check the Articles of Association
- Permissibility: The Articles of Association (AoA) must allow the increase of authorised share capital.
- Amendment: If the AoA doesn’t allow for the increase, it needs to be amended, which usually requires a special resolution.
b) Convene a Board Meeting
- Agenda: One of the main items on the agenda should be the proposal to increase the authorised share capital.
- Notice: Ensure all board members receive an appropriate notice for the meeting, as per regulatory requirements.
3. Board Resolution
The board must pass a resolution for:
- Proposal: Proposing the increase in authorised share capital.
- General Meeting: Convening an Extraordinary General Meeting (EGM) or Annual General Meeting (AGM) for shareholders’ approval.
4. Shareholders’ Approval
a) Convene a General Meeting
- Notice: Shareholders should receive a notice detailing the purpose of the meeting.
- Documents: Attach the resolution passed by the board and any other relevant documents.
- Resolution: The increase in authorised share capital requires an ordinary or special resolution, depending on jurisdictional requirements.
- Approval Threshold: Typically, a significant majority (often 75%) of shareholders must approve the resolution.
5. Filing with Regulatory Authorities
Once the shareholders approve the increase:
- Documents: Prepare and compile all necessary documents such as the altered AoA, minutes of the board and general meetings, and the resolution passed.
- Form Submission: Depending on the jurisdiction, there might be specific forms required to intimate the regulatory body about the change.
- Fees: Pay any requisite fees associated with the filing.
6. Update Company Records
- Books of Accounts: Reflect the change in the authorised share capital in the company’s books of accounts.
- Share Certificates: If new shares are issued following the increase, then new share certificates need to be distributed.
7. Compliance and Reporting
- Audit: Depending on the jurisdiction, the increase in authorised share capital might need to be reflected in annual reports and might be subject to audit.
- Ongoing Reporting: Ensure all future reports and communications accurately reflect the updated share capital.
8. Other Considerations
- Regulatory Review: Be aware that regulatory bodies might take time to review and approve the submission.
- Filing Deadline: Ensure that all filings are done within the stipulated deadline post the shareholders’ approval.
b) Rejection by Regulatory Bodies
- Redressal Mechanism: Understand the redressal mechanism if the regulatory body rejects the application.
- Resubmission: Familiarize yourself with the process of resubmission, if applicable.
Increasing authorised share capital is a significant step that can pave the way for a company’s growth and expansion. While the procedure is fairly standardized, nuances might vary based on the specific jurisdiction. It is vital to be diligent and ensure that all regulatory requirements are met to make the process smooth and effective.
By understanding the above procedure, companies can ensure they take a structured approach to increase their authorised share capital, minimizing potential pitfalls and maximizing efficiency. Always consult with legal experts familiar with the specific regulations in your jurisdiction to ensure full compliance.