The share capital of a company can be increased in two ways: Increase of authorized capital, and Increase of subscribed capital. The procedure for increasing share capital are briefly explained as below.
1. Increase of Authorized Share Capital
Whenever the company decides to increase its authorized capital, the following procedure is to be followed:
1. A resolution should be passed in the general meeting.
2. The resolution should also specify the manner in which the new shares should be issued.
3. A notice of increase along with the particulars regarding the new shares etc. must be filed with the Registrar within 30 days from the date of passing the resolution.
4. If any default is made by the company in complying with the formalities laid above, every officer who authorized the same shall be liable to a fine up to Rs.500 per day.
2. Increase of Subscribed Share Capital
A company, which proposes to increase its subscribed capital, can do it in two ways.
- By allotment of further shares.
- By conversion of debentures or loans into shares.
1. Allotment of Further Shares
1. Time Limit: An increase of this type can be made at any time after the expiry of two years from the date of registration of the company or after one year from the date of first allotment of the company which ever is earlier.
2. Rights Issue: Any further issue of unissued shares should be first offered to the existing shareholders in proportion to their shareholding in the company. This provision aims to enable the existing shareholders to retain their control over the company.
3. Notice of the Offer: A notice specifying the offer and the number of shares offered must be sent to the existing shareholders. At least 15 days time should be given within which such offer may be accepted.
4. Refusal of the Offer: If the offer is not accepted within the time limit specified, the offer is deemed to have been refused by the existing shareholders. They can also convey their refusal even earlier the time specified.
In those circumstances, the Board of Directors may offer such shares to the public in any manner, which in their opinion, is beneficial to the company.
5. Issue of Shares to Outsiders: The shares can also be offered to outsiders without offering them to the existing shareholders only when-
- A special resolution is passed in the general meeting, or
- An ordinary resolution is passed to that effect and the sanction of the Central Government is also obtained.
2. Conversion of Debentures or Loans into Shares
A company may convert its debentures or loans into shares. The Companies Amendment Act, 1963, introduced the provisions relating to such conversion.