increase in paid up capital

PROCEDURE FOR INCREASING AUTHORISED SHARE CAPITAL:

• Check whether the company prima-facie authorised by the Articles of association to increase the share capital if it does not authorise the proceedings are to be completed with the objective of altering them.
• To convene the board meeting for enabling the board to call for extraordinary general meeting (if not passed at Annual General Meeting) to get approval from the shareholders for increasing the authorised share capital.
• Call for an extraordinary general meeting of the shareholders of the company by sending a notice with clear agenda, explanatory statements and the resolutions to be passed to alter the Memorandum of Association and Articles of Association which are to be altered for the purpose of increasing the authorised share capital.
• Pass the resolutions for increasing the authorised share capital of the company and corresponding alterations in Memorandum of association and Articles of Association by special resolution.
• Authorise the board to file necessary forms and resolutions with ROC having jurisdiction.
• Filing the e- form SH7 with Roc by paying the requisite fee.

Pl refer Sections 42 and 62 with Rules framed thereunder for procedure for increase in paid-up capital.

According to the Companies Act, 2013 a private company may issue shares by:

a. Private Placement

According to Section 42, private placement is when a company makes an offer or invitation to subscribe securities to a select group of individuals through the issue of a private placement offer letter.

1. An offer of private placement can be made to a maximum of 200 individuals in a single financial year.
2. The value of the investment should be at least INR 20,000 (on the face value of the securities).
3. A private placement letter is sent to applicants (coded with serial numbers) electronically or in writing.
4. In the case of issue of shares, a special resolution needs to be passed by the existing shareholders. (Form MGT 14)
5. The value of the shares should be certified by a Chartered Accountant (CA) with at least 10 years of experience.
6. The payment for securities should be made directly from the bank account for the individual subscribing.
7. Securities should be allocated within 60 days of receipt of the application money. If securities are not allocated (because of oversubscripttion or inability to raise enough capital), then the application money should be refunded within 15 days post the expiry of 60 days. If a company still fails to do so, then the company is liable to pay a 12% interest on the application amount.
8. The company must file the following with the Registrar of Companies:
   1. PAS-3 (The return of security allotment within 30 days of allotment)
   2. PAS-4 (Private placement offer letter)
   3. PAS-5 (Complete record of private placement)

b. Preferential Allotment

Preferential allotment is the allotment of shares to a select group of people on a preferential basis.

This does not include an offer of shares through a public issue, right issue, bonus issue, ESOP, etc.

Procedure for Issue of shares to any persons other than existing equity shareholders     U/S 62 (1) ( c ) ( taking into account procedure u/s 42 also ) :

1) Prepare a list of persons ( not exceeding 200 in a financial year for each kind of security ) to whom offer  may be made.

2) Ensure that no allotment against any previous offer / invitation of any kind of security is pending issue to be authorized by AOA.

3) Issue to be authorized by AOA.

4) Pass special resolution for such issue.

5) Explanatory Statement to contain justification for price and premium, if any and also other matters as prescribed by the rules.

6) Valuation report of registered valuer / independent merchant banker / independent CA for price calculation.

7) Only fully paid securities can be issued.

8) Issue an offer letter in form PAS – 4. ( If the shares are issued to existing members, Pass 4 need not sent )

9) Requirements of Offer letter :

   (a) To be accompanied by serially numbered application form.

  (b) Addressed specifically to the person to whom offer is being made

  (c) Sent to only such person in writing / electronically

  (d) Within 30 days of recording names in the list

  (e) No person other than the addressee allowed to apply through application form

  (f) Value of offer / invitation per person not less than Rs.20,000/-of face value of the                       Security

  (g) To also comply with requirement of contents of notice about renunciation etc..

10) Maintain record of offer letters in PAS – 5. ( If the shares are issued to existing members, Pass 5 is not applicable )

11) File offer letter with ROC along with record of offer letters in PAS - 6 within 30 days of circulation of offer letter. ( If the shares are issued to existing members, Pass 6 is not applicable )

12) Amount against offer to be received only by cheque / demand draft / other banking channels but not by cash – only from the bank account of the subscriber.

13) Company to maintain record of the bank account from which payments received.

14) In case of joint holders, payment was received from first applicant only.

15) Allotment was completed within 12months from the date of passing of special resolution. If not, another special resolution was passed to complete allotment.

16) Where Convertible securities are offered, price of resultant shares shall be determined beforehand on the basis valuation report.

17) Board resolution to specifically contain authority for issuance of share certificates by any two directors and out of which one should be director other than MD / WTD.

18) Share application money was kept in separate bank account AND  was utilized only for

       a) adjustment against allotment ;

      b) Repayment .

19) Return of allotment in form PAS -3 within 30 days.

20) Share Certificates to be issued within 2 months of  allotment / 6 months of allotment of debentures.

21) Entry in Register of Members.

22) In case of consideration other than cash, accounting treatment as specified in Rules, was complied.

c. Way of Rights Issue

As per Section 62 of the Companies Act, 2013 right shares can be offered to:

1. Employees under Employee Stock Options (ESOPs) by way of passing a special resolution.
2. Any person authorized by way of passing a special resolution.
3. To existing shareholders based on the Articles of Association.
4. Shareholders are given 15-30 days to accept right issue.

d. Conversion of Loan or Debentures into Shares

By passing a special resolution, a company can convert its loans or debentures into shares. For shares to be convertible, a term has to be attached to the loan or debentures permitting the company to convert them into shares. (Section 62)

e. Bonus Issue

1. Bonus issue of shares should be authorized by the Articles of Association.
2. A resolution needs to be passed at a general meeting.
3. All existing shares must be paid-up fully.
4. The company has not defaulted in any repayments (statutory dues, debt securities or fixed deposits).
5. Bonus issue can be made from Capital Redemption Reserve, free reserves and security premium accounts.
6. Once a bonus issue is announced, it cannot be nullified or withdrawn.