Increase in paid up share capital in a private company

This query is : Resolved

Querist : Anonymous

Querist : Anonymous (Querist)

01 May 2013 Dear Members,

A private limited company has to increase its paid up capital to person other than the existing members. What are the requirements for such increase.

Whether the approval of existing members is also required for making allotments to new allotees.

Thanks

Ankur Garg

Ankur Garg (Expert)
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01 May 2013 Section 81 for right issue is not applicable to a private company. So a private company can allot new shares directly to a new person. There is no need to first offer new shares to the existing shareholders.

For increase in paid up capital you have to issue new shares and allot them in the board meeting through a board resolution.

Return of allotment is required to be submitted u/s 75 by filing form-2 with concerned Registrar of Company.

Procedure

1. First convene board Meeting for allotment of equity shares and pass necessary resolution for allotment.
2. Download form-2 from MCA Site www.mca.gov.in
3. Fill form-2 and attach list of allottee.
4. Get form-2 certified from practicing CS/CA and upload the same on MCA Site.

Regards

Querist : Anonymous

Querist : Anonymous (Querist)

01 May 2013 Thanks a lot, Sir will the position same if the company in question is the subsidiary of unlisted public company.

Thanks.

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Asha Kanta Sharma

Asha Kanta Sharma

(Expert)
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01 August 2024 When a private limited company, which is a subsidiary of an unlisted public company, intends to increase its paid-up capital by issuing shares to persons other than the existing members, several steps and approvals are required. Here's a detailed guide on the process:

### **Requirements for Increasing Paid-Up Capital**

1. **Board Approval:**
- The decision to increase the paid-up capital must first be approved by the board of directors of the private limited company. This involves passing a board resolution.

2. **Shareholders' Approval:**
- **Special Resolution:** The increase in paid-up capital involving issuance of shares to persons other than existing members typically requires approval from the shareholders. This is achieved by passing a special resolution at a general meeting of the company.
- **General Meeting:** The company needs to call a general meeting of its shareholders to pass the special resolution for increasing the paid-up capital and issuing shares to new allottees.

3. **Compliance with the Companies Act, 2013:**
- **Notice and Filing:** The company must file the special resolution with the Registrar of Companies (ROC) in Form MGT-14 within 30 days of passing the resolution.
- **Form PAS-3:** After passing the special resolution, the company must file Form PAS-3 with the ROC to report the allotment of shares.

4. **Compliance with Articles of Association (AOA):**
- The company should ensure that its AOA allows for the increase in paid-up capital and the issuance of shares to new persons. If the AOA does not permit this, an alteration to the AOA may be required, which also necessitates a special resolution.

5. **Pricing of Shares:**
- The price at which shares are issued must be determined, ensuring it is in compliance with the provisions of the Companies Act, 2013, and the guidelines for pricing of shares.

6. **Disclosure Requirements:**
- The company must disclose the details of the allotment, including the names of the allottees, the number of shares allotted, and the consideration received.

### **Approval of Existing Members**

- **Existing Members' Approval:** Generally, the approval of existing members is required to issue shares to persons other than themselves. This is because the issue of new shares typically dilutes the existing shareholders' ownership. Hence, a special resolution in the general meeting is required to authorize this action.

### **Process Summary**

1. **Board Resolution:** Approve the proposal to increase capital and issue shares.
2. **General Meeting:** Call a general meeting to pass a special resolution.
3. **File with ROC:** Submit Form MGT-14 and Form PAS-3 with the ROC.
4. **Ensure Compliance:** Confirm that the AOA permits the issuance of new shares and that the share pricing complies with legal requirements.

### **Additional Considerations**

- **Pre-emption Rights:** If the AOA provides for pre-emption rights, existing shareholders may have the right to subscribe to the new shares before they are offered to outsiders.
- **Regulatory Requirements:** Ensure that all regulatory requirements are met, including any guidelines from the Securities and Exchange Board of India (SEBI) if applicable.

For specific cases or complexities, consulting with a company secretary or legal advisor is recommended to ensure compliance with all statutory and regulatory requirements.