DOCUMENTS REQUIRED

Some Important Key Notes while Increasing the Paid-up Share Capital of the Company-

• At very First need to Check whether Articles of Association of Company contain a provision authorizing it to increase its Paid-up Share Capital.
• If you did not find such provision then before increasing paid-up share capital, amend its articles to include such authorization under section 14;

Once Allotment done or capital Increased must verify the following-For Increase in Issued/ Subscribed Capital Check Whether:

• Resolution approving increase in issued/ subscribed capital is filed with MCA?
• E-Form PAS 3 (Allotment of shares) was filed with proper attachments with MCA?
• Share certificates issued? [Format of Share Certificate – Form No. SH.1]
• Entries made in the Register of members (MGT-1)?
• Entries have been passed in the Books of account?

Note*- Every share certificate shall be issued under the seal of the company, which shall be affixed in the presence of, and signed by the TWO directors of the Company and secretary or any person authorized by the Board.

Legal Proedures

For increasing paid-up share capital, it is important to see under which category the capital increase fall in place:

• Right Issue
• Bonus issue
• Private Placement
• Conversion of loan or debenture in to share capital

RIGHT ISSUE UNDER SECTION 62

Process of increase in Paid share capital through Existing Shareholders in Private Limited Company is governed by section 62 of the Companies Act 2013 and Rule 13 (RIGHT ISSUE). Section 62 of the Act contains provisions relating to further issue of share capital through Right issue, issue through Employee Stock, Exchange Stock Option Scheme and on preferential basis.

Right Issue can be offered to: -

• the existing Shareholders.
• the employees under a scheme of ESOS.
• any other persons, by way of preferential offer, if authorized by AOA.

Step-1: Amendment of Article if required

• Check whether the Right issue be authorised by article of the company if not then amend Article First.
• If so, call a board meeting to approve the notice of General meeting to pass necessary special resolutions at the general meeting to amend Articles of Association.
• Convene the general Meeting and obtain shareholders’ approval through special Resolution.
• File the form MGT14 filed with ROC with 30 days from passing Special Resolution.

Step-2: Hold A Board Meeting and issue the Offer letter

• Board of director shall call and hold board meeting to give the effect of right share issue;
• In the board meeting director shall decide number of shares to be issued through right issue and price of right issue
• The offer should be made by notice, specifying the number of shares offered and limiting a time not being less than fifteen days and not exceeding thirty days from the date of the offer within which the offer, if not accepted, shall be deemed to have been declined.
• This notice shall be despatched through Registered post or speed post or through electronic mode to all the existing shareholders at least three days before the opening of the issue.
• However, in case of private companies in case 90% of members have given their consent in writing or in electronic mode, the lesser period than the specified period shall apply.
• The shares declined by the existing shareholder can be disposed off by the company in manner which is not disadvantageous to the shareholders and the company.
• Once Application money Received allot the share to the shareholders.

Step-3: Reporting with ROC

Once the allotment is made, the company shall within 30 days of allotment, file with the Registrar a return of allotment in Form PAS.3, along with the fee as specified in Companies (Registration of Offices and Fees) Rules, 2014.

Step-4: Role of the Company after Allotment & Filing

• Deliver the share certificates of allotted shares within a period of 2 months from the date of allotment.
• Intimate the details of allotment of shares to the Depository immediately on allotment of such shares (If shares are in Demat as applicable)

PRIVATE PLACEMENT UNDER SECTION 42

Step 1: Hold board meeting and give notice to call EGM

• 1. For issue of offer letter to the person to whom company intent to allot the share, subject to approval of shareholder
• 2. Give notice for Calling of EGM for approval of private placement offer letter

Step 2: Call an EGM and pass the Special Resolution & Approve the Offer letter

• 1. Pass the special resolution for approval of security through private placement offer
• 2. Approve the private placement offer letter in form PAS 4

Step 3: Filing of MGT-14

• 1 File MGT 14 for special resolution pursuant to provisions of Sec 117 within 30 days (If applicable)
• 2 File another MGT 14 for issue of offer letter within 30 days

Step 4: Hold again board meeting

• 1. Make allotment of shares

Step 5: Reporting to ROC

• 1 File form MGT 14 for issue of securities pursuant to the provisions of Sec 117
• 2 File for PAS 3 for Return of Allotment within 30 days

Other provisions related to issue of securities

• 1. The offer for Private Placement can be made either through electronically or physical mode, in Form PAS-4.
• 2. Offer for each kind of securities shall not be made to more than 200 persons in a financial year.
• 3. Minimum offer of securities shall not be less than Rs. 20000/- on face value of the securities
• 4. Subscription money shall be paid through banking channel only, not by cash
• 5. Allotment has to be made within 60 days from the date of receipt of application money.
• 6. Application money shall be kept in a separate bank account and it can’t be utilised before allotment.
• 7. List of allottee shall be signed by the person who is making the Digital signature on form PAS3

CHECKLIST FOR ALLOTMENT OF SHARES THROUGH PRIVATE PLACEMENT OF SHARES

Section 42 read with Section 62 of the Companies Act, 2013 and rule 14 of Cos. (Prospectus & Allotment of securities) Rules, 2014

CONVERSION OF LOAN INTO EQUITY UNDER SECTION 62(3)

Before Issue of Debenture or Acceptance of Loan

Step-1: Holding of Board Meeting

• Pass a resolution for Acceptance of Loan or issue of debenture
• Pass board Resolution for conversion of such Loan / Debenture into Equity share Capital of the Company
• Issue Notice to call Extra Ordinary General Meeting.

Step-2: Holding of Extra Ordinary General Meeting

• Pass Special resolution for conversion of such loan/ Debenture into Equity share capital of Company in Future.
• File e-form MGT-14 within 30 days of passing of Special Resolution with ROC.

Step-3: Execution of agreement between parties

• Company & Loan Giver (Party) will execute an agreement of Terms of Loan or Debenture.
• Agreement must contain the term of conversion of such Loan or Debenture into Equity share capital of Company in Future.

Steps while conversion of Debenture / Loan into share capital:

• Hold of Board Meeting
• Pass the Board Resolution for Allotment of Equity Shares in respect of conversion
• Filing of e-form PAS-3 for allotment of Shares within 30 days of passing of Board Resolution along with List of Allottees.

FEATURES & BENEFITS

Business Growth- By increasing the paid-up capital you can grow the business. If you have got many heads of expense, it is always better to avoid debts and increase the capital of the growing business by increasing paid-up capital of your company.

Innovative Product/Service- With increase in PUC, it will have a buffer which will result in tapping more ideas related to invention. Hence, by increasing the paid-up capital, the company can become more inclined to new ideas leading to innovation of the products or services.

Ahead of Competition- By increasing capital the company can be ahead of its competitor in the market as with the help of technical know-how. Therefore, to remain ahead and competitive, it may require to bring in more capital to the company.

Changing Ecosystem- With the change in ecosystem, market is changing very fast. Hence, to give more satisfaction to consumer the company has to make their business more viable and therefore comes the need to increase the paid-up capital.

Let us understand more in the form of Question and Answers

Q. What do we mean by Nature of Share Capital?

Nature of Shares

Nature and transferability of shares

• (1) A share or other interest of a member in a company is personal property.
• (2) A share or other interest of a member in a company is transferable in accordance with the company’s articles.

No nominal value

• (1) Shares in a company have no nominal value.
• (2) This section applies to shares issued before the commencement date of this section as well as shares issued on or after that date.

Q. Is there any minimum requirement of Paid-up Share Capital for company?

No, a company can be incorporated without any limit on paid up share capital.

Q. What kind of Register of Member is required to be maintained under the Companies Act 2013 for the paid-up Share Capital?

What are the Difference between Sec 42 & Sec 62 while Company is making Further issue of Share Capital?

Class of securities falling under section 62 must be shares or securities convertible into shares resulting into increase in subscribed capital of the company. On the other hand, all securities fall under section 42. Hence, in a way all preferential allotments are private placements.

But all private placements are not preferential allotments. It is to be noted that if company raises loan with an option to convert such loan into shares with prior approval of members of the company by way of special resolution before raising of such loan, neither section 42 nor section 62(i)(c) shall be applicable. However, the Company is required to comply with section 62(3) for raising such loans. The issue of securities falling under the section 62(1)(c) shall also comply with the requirements of section 42.