The maximum number of shares a private limited company can issue is decided by its authorized capital. To issue new shares or to raise the capital, the capital clause of the Memorandum of Association must be amended by passing a special resolution of the board.
The authorized capital of a Company states the number of shares a Company can issue to its shareholders. Increase in authorized capital might be required for issuing new shares and/or inducing more capital into the Company. In relation to a company, certain amount is mentioned in the capital clause of the Memorandum of Association of the company. Up to this amount the company can raise capital. If the company needs more capital then the capital clause has to be amended by passing a special resolution at a meeting by the members.
ADVANTAGES
ISSUING SHARES TO EXISTING PROMOTERS
If the business is increasing the authorised capital and issuing new shares to existing promoters, a board meeting has to be called and Form PAS-3 must be filed with the Registrar of Companies (RoC), declaring the allotment of shares.
ISSUING SHARES TO NEW SHAREHOLDERS
It is a complicated procedure, which necessitates a valuation report certified by a chartered accountant.