Increase of authorised share capital
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INCREASE OF AUTHORISED SHARE CAPITAL.

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INCREASE OF AUTHORISED SHARE CAPITAL

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Increase of authorised share capital

INCREASE OF AUTHORISED SHARE CAPITAL

Where a company planning to increase its share capital beyond its authorised share capital, it should file with the registrar notice of increase of share capital with in 30 days from the date of passing of ordinary resolution (special resolution if so required by the AOA) authorising the increase. The notice shall include particulars of classes of shares affected (i.e. Equity share, preference shares etc.

For this purpose, the extra ordinary general meeting should be convened and after passing the special resolution then only it is possible to increase the authorised share capital. For this purpose the memorandum is required to be altered.

The Company has to file form-5. With form-5 the company is required to attach the Altered MOA.


Increase of authorised share capital

4) In addition to above check the Articles of Association relevant to the Share capital. If it require to be change the AOA or Special Resolution is required for Increase of Authorised share capital then form-23 is attached with form-5 and Copy of AOA also.

5) There is no Stamp duty in Tamil nadu for filing form-5

6) However the ROC fees is required to be paid and the amount to be payable will be available in the below link

“http://www.mca.gov.in/DCAPortalWeb/dca/MyMCALogin.do?method=setDefaultProperty&mode=15”

7) If any default is made in complying this provision, the company and every officer in default shall be punishable with fine which may extent to Rs.500 for every day during which such default continues.


Capitalisation of reserves and surplus

CAPITALISATION OF RESERVES AND SURPLUS

If there is huge amount of reserves available, then capitalise the amount through allotment of bonus shares, right issues etc.

Procedure for Right Issue

If there is sufficient Authorised share capital available, then only it is possible to Right Issue. If the authorised share capital is inadequate, the memorandum of association must be amended to increase it by a suitable amount. If the articles also contain the authorised share capital, the articles also will have to be amended.


Increase of authorised share capital

2) Board's Approval. Convene a Board meeting and pass the following resolutions:

(a) To approve the proposal of issuing new shares on rights basis and decide the price, total number of shares to be offered, proportion in which the rights shares will be offered, etc;

(b) To approve a draft Letter of Offer;

(c) To fix a date as a record date (or dates of closure of the Register of Members) for drawing up a list of members eligible to receive the offer;

(d) To approve a draft application form (for subscribing to the rights shares, additional shares, splitting the rights renunciation);

(e) To authorize Company Secretary or other officer to send the Letter of Offer to the members and to do such acts, deeds and things as may be necessary to give effect to the Board's decision;

(f) To convene a general meeting for passing necessary resolutions, if any; to fix date, time and place of the general meeting and to authorize the Company Secretary or other officer to issue notice of the meeting. Section 73


Increase of authorised share capital

3) General meeting. A general meeting will be convened to pass necessary ordinary/special resolution, if the articles require a resolution. Ensure that the explanatory statement annexed to the notice of the meeting fully explains the objects and reasons for the rights issue and justification therefore.

4) Filing of resolution. The special resolution passed at the general meeting will be filed with the Registrar of Companies. If a resolution for increasing the authorized share capital has been passed, requisite registration fee will be paid at the Registrar's office.

Record Date/Book Closure. Announce a record date/book closure as decided by the Board of directors well in advance allowing at least 2 to 3 weeks for lodgement of share transfer forms so as to exercise the right to take the rights shares. The closure of the Register of Members should be in accordance with the provisions of section 154 of the Companies Act.

(Sec.154 : A company after giving 7 days previous notice in local news paper may close the register of Member. The closure should not exceed 55 days in a year and 30 days one time)


Increase of authorised share capital

6) Draw the list of member to ascertain who eligible to subscribe to the right shares.

7) As per section 81(1)(b) a notice should be issued for Right shares. This notice is called ‘Letter of offer’. Give atleast 15 days time to shareholders for exercising their option. There is no form prescribed for issue of Letter of offer. However it should contain the following information:


Increase of authorised share capital

a) Brief history of the company;b) Nature of business carried on by the company;c)Highlights of the financial performance for 3 to 5 years;

d) Management perception about the future prospects of the company;

e) Particulars of directors, including managing and whole-time directors;f) Details of the proposed rights issue;g) The number of shares held by a shareholder and the number of rights shares;

h) Terms and conditions of the present issue and mode of payment.


Increase of authorised share capital

8) With in One week from the last date of application scrutinize the form in all respect i.e. defect etc. and prepare statement of allotees.

9) Convene a meeting of the Board/Allotment Committee and pass a resolution for allotment and file Return of Allotment with the Registrar of Companies.

10) Prepare and despatch Letters of Allotment. Alternatively, prepare and despatch Share Certificates to the allottees. In any case, Share Certificates should be despatched within 3 months from the date of allotment [113]

11) Simultaneously, prepare and despatch regret letters and refund orders to the applicants to whom no shares have been allotted.

12) And finally make entry in the Register.

(A model right issue letter has been attached herewith)


Increase of authorised share capital

Procedure for Bonus issue:

Issue of bonus share is a common feature and it takes place when the company accumulates a large surplus. This surplus is converted into capital and divided among members in proportion to their rights as fully paid bonus shares. The Companies Act, 1956 does not contain any provisions dealing with bonus shares, though it has made references to bonus issue in certain sections. Section 205(3) of the Companies Act, 1956 there is no prohibition on a company to capitalise its profits or reserves for the purpose of issuing fully paid-up bonus shares or paying up any amount, for the time being unpaid, on any shares held by the members of the company.

The procedures are explained below:

1) Verify the Articles of Association and Memorandum of Association to know whether the company is eligible to issue bonus shares


Increase of authorised share capital

2) Regulations 96 & 97 of Table A to Schedule I of the Companies Act, 1956 contain provisions relating to capitalisation of profits and reserves of the company. According to that the company can capitalise any reserves, credit to the profit and loss account, or otherwise available for distribution and includes share premium account, capital redemption reserve only even such reserves is not available for distribution.

3) Verify whether there is sufficient Authorised capital is there to issue Bonus shares. If no, take the steps as explained above to increase the authorised share capital.

4) Before placing the proposal before the Board of Directors of the company, determine the terms and conditions of the bonus issue, namely,


Increase of authorised share capital

Bridges the gap between capital and fixed assets.

Increase the market price of its shares.

Creates confidence for the investors/shareholders in the company.

Good market reputation.

Increases liquidity of shares.

5) As per regulations 96 & 97 in Table A of Schedule 1 of the Companies Act, 1956 the proposal to issue bonus shares has to be approved by the shareholders of the company in general meeting upon recommendation by the Board of Directors of the company. However if these regulations have been excluded from the Articles of Association of the company then it shall be sufficient if the Board approves the bonus issue.


Increase of authorised share capital

6) A board meeting should be convened, and specimen Agenda should be circulated.

7) Give Notice of Extraordinary General meeting. This is necessary only if the Articles of Association of the company provide that approval of the members of the company is required to be obtaind for capitalization of reserves.

8) File Return of allotment in Form No 2 of Companies (Central Government's) General Rules and Forms, 1956 with Registrar of Companies together with prescribed fee within 30 days of after the date of allotment.


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