Increasing authorized capital is a process through which a company obtains approval from its shareholders and regulatory authorities to raise the maximum amount of capital it can issue in the form of shares. This increased authorized capital provides the company with flexibility for future capital-raising activities. Here are the general steps and considerations for using increased authorized capital for capital-raising activities:
- Shareholder Approval:
- Hold a board meeting to discuss the need for increased authorized capital.
- Draft a resolution proposing the increase in authorized capital and convene a shareholder meeting.
- Obtain approval from the shareholders through a special resolution, which typically requires a higher majority vote.
2. Regulatory Approval:
- Depending on the jurisdiction, regulatory approval may be required for the increase in authorized capital. Submit the necessary documents and applications to the relevant regulatory authorities.
3. Amendments to Articles of Association:
- If the increase is approved, amend the company’s Articles of Association to reflect the new authorized capital.
4. Issuance of New Shares:
- With the increased authorized capital, the company can issue new shares to raise funds. This can be done through various methods, such as a rights issue, private placement, or a public offering.
5. Rights Issue:
- A rights issue allows existing shareholders to purchase additional shares at a discounted rate in proportion to their existing holdings. This is a way to give priority to current shareholders.
6. Private Placement:
- Private placement involves selling shares to a select group of investors, such as institutional investors or strategic partners, without making a public offering.
7. Public Offering:
- If the company decides to go public or conduct a public offering, it can issue new shares to the public through an Initial Public Offering (IPO) or a follow-on public offering.
8. Use of Proceeds:
- Clearly communicate how the funds raised through the issuance of new shares will be utilized. This information is typically provided in prospectuses or offering documents.
9. Compliance and Reporting:
- Ensure compliance with all relevant regulatory requirements and disclose necessary information to shareholders and regulatory authorities.
10. Record Keeping:
- Maintain accurate records of the capital-raising activities, including the number of shares issued, the price at which they were issued, and the use of proceeds.
It’s important to note that the specific procedures and requirements may vary based on the legal and regulatory framework of the jurisdiction in which the company operates. Companies should seek legal and financial advice to ensure compliance with all applicable laws and regulations.