📌 Can a Company Raise Additional Investment Without Increasing Authorized Capital?
No, a company cannot issue new shares and raise additional paid-up capital beyond its current authorized capital.
🔹 Why?
- Authorized Capital is the maximum capital a company is legally allowed to issue.
- Paid-Up Capital is the actual amount raised by issuing shares.
- If the Paid-Up Capital reaches the Authorized Capital limit, the company must first increase Authorized Capital before issuing new shares.
🔹 Example:
- Current Authorized Capital = ₹1 Lakh
- Current Paid-Up Capital = ₹1 Lakh
- Target Paid-Up Capital = ₹25 Lakh
🚫 Since ₹25 Lakh exceeds ₹1 Lakh (authorized limit), the company cannot issue more shares unless the authorized capital is increased.
📌 Alternative Ways to Raise Investment Without Increasing Authorized Capital
If you do not want to increase the Authorized Capital, you can still raise funds using other methods:
1️⃣ Issue Preference Shares Instead of Equity Shares
- If the current authorized capital structure allows it, you can issue preference shares instead of equity shares.
- Preference shares do not dilute ownership but offer fixed dividends.
2️⃣ Issue Convertible Debentures (CCD/OCD)
- Compulsorily Convertible Debentures (CCD) or Optionally Convertible Debentures (OCD) allow raising debt, which converts into equity later.
- It does not immediately increase paid-up capital, so no need to increase authorized capital initially.
- However, when converted to shares, the authorized capital must be sufficient at that time.
3️⃣ Bring in Investment as Share Premium
- If investors are willing, they can buy existing shares at a premium instead of issuing new shares.
- Example: Instead of issuing 1,00,000 new shares, sell 10,000 shares at ₹250 per share (instead of face value ₹10).
- This increases company funds but does not exceed authorized capital.
4️⃣ Raise Investment as Debt or Loans
- Instead of equity investment, the company can take business loans or issue debentures.
- This helps raise capital without increasing authorized share capital.
📌 Conclusion: What Should You Do?
🚀 If you want to raise funds through share issuance, you MUST increase the Authorized Capital.
✔ If you want to avoid increasing authorized capital, consider Preference Shares, Debentures, or Share Premium methods.
Would you like help in choosing the best funding structure for your company? 😊