According to Section 2(8) of the Companies Act, 2013, "authorised capital" or "nominal capital" refers to the maximum amount of share capital authorised by the company's memorandum.

A company's ability to extend its operations up to its authorised capital has been clarified by the above definition. If you wish to develop your firm by infusing more funds, you must first increase your authorised capital by following the simple procedures outlined below in the procedure to increase authorised capital.

Consider the following examples: -

EXAMPLE I : The company XYZ Pvt. Ltd has a paid-up capital of Rs. 1,00,000 (10,000 equity shares of Rs. 10 each) and an authorised capital of Rs. 1,00,000 (10,000 equity shares of Rs. 10 each) and intends to increase its business by financing Rs. 5,00,000 by issuing 50,000 equity shares of Rs. 10 each in order to do so. What measures does the company need to follow in order to raise Rs. 5,00,000?

As previously stated, XYZ Pvt. Ltd has the ability to extend its business up to the amount of authorised capital. Because the business's revised paid up capital would surpass its existing authorised capital, the company must first enhance its authorised capital. Let's have a look at it.

Capital that has already been paid up Rs. 1,00,000
Additional 50,000 10-rupee equity shares are issued Rs. 5,00,000
Paid-in capital revised Rs. 6,00,000

The revised paid-up capital of Rs. 6,00,000 is higher than the permissible capital of Rs. 100,000. As a result, the allowed capital must first be increased from 100,000 to 600,000, after which the firm can only obtain funds by issuing further shares.

Following are the steps to be taken:

  • To increase the company's authorised capital from 1,000,000 to 6,000,000, the registrar of companies must file form SH-7 (ROC).
    The revised structure appears to be as follows:-
    Existing authorised capital Rs. 1,00,000
    Addition Rs. 5,00,000
    Revised Rs. 6,00,000
  • With the approval of the ROC, the allowed capital has been increased from 1,00,000 to 6,00,000, allowing the firm to issue 50,000 equity shares of Rs. 10 each.
  • Company will receive Rs. 5,00,000 as application money from the shareholders for the shares that are to be allotted.
  • Form PAS-3 (Return of allotment) must be filed with the ROC within thirty days after the date of allotment.

EXAMPLE II : XYZ Pvt. Ltd, a company limited by shares with a paid up capital of Rs. 1,00,000 (10,000 equity shares of Rs. 10 each) and an authorised capital of Rs. 6,00,000 (60,000 equity shares of Rs. 10 each), seeks to grow its business by raising Rs. 5,00,000 by the sale of additional 50,000 equity shares of Rs. 10 each. What measures would a corporation need to follow in order to raise Rs. 5,00,000?

According to what we know, XYZ Private Limited has the ability to increase the size of its firm up to the amount of authorised capital. Because the company's allowed capital is Rs. 6,00,000 and its paid up capital is Rs. 1,00,000, it may easily expand its business by obtaining Rs. 5,00,000 by issuing 50,000 equity shares at Rs. 10 each.

Due to the fact that current and revised paid-up capital does not exceed approved capital, the company is exempt from having to increase authorised capital.

Existing paid capital Rs. 1,00,000
Addition Rs. 5,00,000
Revised paid capital Rs. 6,00,000 equal to the authorised capital
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