Authorised capital is just the capital set aside for the highest quantity of money that a company can raise through issuing shares to its members. It is basically a stipulated limit in the Memorandum of Association of the company, so it acts as a limit for equity financing. It can be divided into shares with a predetermined nominal value. The company can offer this to subscribers or other persons. However, the whole amount need not be issued as authorised share capital; it may be partially issued, with the option to issue more in the future.
This is an important term because a company can expand its base without any complex legal work whenever it needs a larger power. If the company needs more than the authorised capital, then the consent of the shareholders should be taken, and the constitutional documents need to be amended. The established capital of shares serves as a guard to the shareholders from dilution of shares due to over-issues of capital. It gives an idea of how much the company has grown and also how the company plans regarding its finances. Most governments liberalised or abolished the notion of capital that has a quota approved by the shareholders; however, it still represents a notable notion in corporation finances in the majority of jurisdictions.
What is Meant By a Board Resolution?
A board resolution is a decision or agreement in writing formally passed by the directors of a firm during a board of directors meeting. It’s an official paper record of actions taken by a board of directors and of the decisions taken affecting the operations, policies and direction of a company. Such formal approval resolutions are generally necessary to approve the most important corporate activities such as employment of executives, approval of budgets, declaration of dividends, authorization of contracts, opening of bank accounts and significant investments.
A resolution so adopted should generally be reduced to writing and become part and parcel of the corporation’s records or meeting minutes. It includes the matting of the resolution, which was taken on a particular date, and the names of directors who voted for or against it. Majority passage usually suffices for a board resolution; however, some decisions may require unanimous approval, according to the bylaws of the company. The design of board resolutions is to ensure that all core business decisions are transparent, legally valid and meet the governance framework of the company.
Contents and Format of a Board Resolution for Increasing the Authorised Share Capital
A board resolution is a legal document that reflects the decision of the Board of Directors to raise the maximum permissible share capital for the company to increase the authorised share capital of a company. Careful formulation of the resolution is essential to guarantee adherence to all relevant legal and regulatory requirements pertaining to the issue.
It makes the measure the official record of the board of making a decision to increase the maximum share capital allowed for the company. For example, specific drafting of such a resolution will ensure the compliance of all legal and regulatory provisions with regard to the matter. This is what makes the resolution detailed, keeping every legal requirement while being properly and professionally recorded for internal documentation and regulatory submissions. Some of the elements that should be included in the resolution are as follows:
1. Title: “Board Resolution to Increase the Authorised Share Capital of [Company Name]”.
2. Company Specifics like the name legally recognised by the company, registered office address of the company and its Corporate Identification Number (CIN) (if applicable).
3. Date, Time and Place of the Board Meeting mentioning the actual date, time, and location of the board meeting.
4. Introduction/Preface: A statement that the meeting was held pursuant to the Articles of Incorporation of the company and relevant statutes and that the existence of a quorum for this meeting is present.
5. Justification for Increasing Authorised Share Capital: An explanation as to why there is an increase, such as to grow the company, raise capital, or issue new shares.
6. Details of the Proposed Increase, such as the present structure of authorised share capital, the proposed structure for enhancement of authorised share capital and the new structure after an increase in age. For example – The authorised share capital of the company would be enhanced to ₹1,00,00,000 (Rupees One Crore), which is split into 10,00,000 equity shares of ₹10 each from the present ₹50,00,000 (Rupees Fifty Lakhs).
7. Change in Memorandum of Association (MOA): Provisions to seek sanction for alteration of the capital clause of the Memorandum of Association in line with the new authorised share capital.
Illustration:
“This Resolution further provides that Clause V of the Memorandum of Association of the Company shall be amended to read as follows:
Authorized Share Capital of the Company: ₹1,00,00,000/-(Rupees One Crore) divided into 10,00,000 (Ten Lakhs) equity shares of ₹10/-each.
8. Shareholder Consent Approval (if required): This provision allows for an EGM or postal poll to seek shareholder approval for the proposed increase.
9. Authorisation for Filing Statutory Forms: It authorises a director or company secretary to file necessary forms, such as Form SH-7, to the Registrar of Companies (ROC) and takes care of any other regulatory duties. Sample: “It is hereby further resolved that Mr./Ms. [Name], [Designation], shall be authorised to sign, file, and submit all related forms and papers to the Registrar of Companies and do all that is deemed necessary to enforce this resolution.”
10. Date of effective increase: The date on which the increase will become effective, contingent upon regulatory approval.
A Sample Format of a Board Resolution
[Name of the Company]
[Registered Office Address of the Company]
CIN: [Corporate Identification Number]
CERTIFIED TRUE COPY OF THE BOARD RESOLUTION PASSED AT THE MEETING OF THE BOARD OF DIRECTORS OF [COMPANY NAME] HELD ON [DATE] AT [TIME] AT [VENUE]
RESOLUTION FOR INCREASE IN AUTHORISED SHARE CAPITAL
“RESOLVED THAT pursuant to the provisions of Section 61(1)(a), Section 64, and other applicable provisions, if any, of the Companies Act, 2013, read with the applicable rules and the Articles of Association of the Company, the consent of the Board of Directors be and is hereby accorded to increase the Authorised Share Capital of the Company from Rupees [Current Amount] ([Amount in Words]) divided into [Current Number of Shares] equity shares of Rupees [Face Value] each to Rupees [Revised Amount] ([Amount in Words]) divided into [Revised Number of Shares] equity shares of Rupees [Face Value] each.”
“RESOLVED FURTHER THAT Clause V of the Memorandum of Association of the Company be and is hereby altered and substituted with the following:
‘V. The Authorised Share Capital of the Company is Rupees [Revised Amount] ([Amount in Words]) divided into [Revised Number of Shares] equity shares of Rupees [Face Value] each with the power to increase or reduce the capital of the company and to divide the shares in the capital for the time being into several classes and attach thereto respectively such preferential, deferred, qualified, or other special rights, privileges, or conditions as may be determined by or in accordance with the Articles of Association of the Company and to vary, modify, or abrogate any such rights, privileges, or conditions in such manner as may be permitted by the Companies Act, 2013 or the Articles of Association of the Company.’
“RESOLVED FURTHER THAT the approval of the shareholders be sought for the aforesaid increase in the authorised share capital and alteration of the Memorandum of Association by convening an Extraordinary General Meeting (EGM).”
“RESOLVED FURTHER THAT Mr./Ms. [Name], [Designation], of the Company be and is hereby authorised to sign, file, and submit all necessary forms, documents, and returns with the Registrar of Companies (ROC) and to do all such acts, deeds, and things as may be necessary to give effect to this resolution.”
“RESOLVED FURTHER THAT Mr./Ms. [Name], [Designation], be and is hereby authorised to issue the notice of the Extraordinary General Meeting (EGM) to the shareholders of the Company and take all necessary actions in this regard.”
Certified True Copy
For [Company Name]
[Name of Director/Company Secretary]
Director/Company Secretary
DIN/Membership Number:
Date:
Conclusion
The board recognises that the very crucial need to increase the authorised share capital of the company will allow it to grow and expand in the future. Doing so, this resolution underlines the efforts of the company towards strengthening its financial underpinnings through which it may raise other funds by issuing more equity shares as and when necessary. It gets ready to tap new business opportunities, innovate its initiatives and meet its long-term financial goals by passing such a resolution on the board.
The board further appreciates that all legal and regulatory requirements must be complied with in strict adherence to the Companies Act, 2013, and the Articles of Association of the company. All necessary steps for shareholder sanction will be taken through an Extraordinary General Meeting (EGM) to be conducted, and the requisite statutory documents with the Registrar of Companies (ROC) will be filed. The board empowers the nominated officers to perform their roles as may be necessary to implement this resolution fully.
Financial foresight in planning and governance that will promote transparency and accountability in the company’s activities will also manifest itself in the company. The board believes that the increase in authorised share capital shall strengthen the capacity of the company for sustainable growth and increasing shareholder value.
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