Increasing Authorised Share Capital: SECP Process and Requirements

Companies hit this when they take investment, admit a partner, or need to capitalise for a tender or licence requirement. It is a straightforward corporate procedure that goes wrong mainly when the two separate steps - raising the ceiling and issuing the shares - are treated as one.

Authorised, issued and paid-up

Where a tender, licence or counterparty asks for a capital figure, establish which one they mean. They almost always mean paid-up capital, and raising the authorised ceiling without issuing and paying for shares does not satisfy that requirement - a distinction that catches companies out close to a bid deadline.

When you need to increase it

• Taking investment that would exceed the current ceiling.
• Admitting a new shareholder by fresh issue.
• Capitalising reserves through a bonus issue.
• Meeting a minimum paid-up requirement for a licence or tender.
• Converting a loan to equity.
• Restructuring ahead of a transaction.

Check the current authorised figure in the memorandum before assuming an increase is needed - many companies incorporate with headroom and never use it.

The process

1. Check the articles permit an increase and note any procedure.
2. Board meeting to approve and convene the general meeting.
3. Notice to members for the general meeting, with the required period.
4. Members' resolution passed at the meeting.
5. Alter the memorandum capital clause accordingly.
6. File with SECP within the prescribed period, with the resolution and altered clause.
7. Pay the applicable fee, which is generally scaled to the increase.
8. Verify the register reflects the change.

Confirm the current forms, periods and fee schedule on the SECP portal - forms are periodically revised and fee schedules change.

Then actually issuing the shares

This is the separate second step, and it has its own requirements.

1. Board resolution to allot the shares.
2. Observe pre-emption rights where existing shareholders have them.
3. Receive the consideration - and receive it properly, through banking channels.
4. Allot the shares and update the register of members.
5. Issue share certificates.
6. File the return of allotment with SECP within the prescribed period.
7. Update the beneficial ownership record where applicable.

Pre-emption rights are the step most often skipped in family and closely held companies, and they are exactly what a disaffected minority shareholder raises later. Where existing members have a right of first refusal on new shares, offer them properly and record the offer and any waiver in writing - see shareholders' agreements.

Where the investor is foreign

• Bring the funds through formal banking channels, never informally.
• Ensure the remittance is recorded as foreign investment at the time.
• Retain the banking documentation evidencing the inward remittance.
• Comply with applicable reporting requirements.
• Match the share issue to the remittance in the corporate records.
• Take advice on the sectoral position before the investment.

Repatriation of dividends and sale proceeds later depends on the investment having been properly documented on the way in. This cannot be reconstructed afterwards, and it is the single most consequential detail in a foreign share subscription - see foreign ownership rules.

Where it goes wrong

The fourth row deserves care. Shares shown as paid up where the money never arrived create a liability and a record that does not reflect reality - which surfaces in due diligence on any later transaction.

Records to keep

• Notices and minutes of the board and general meetings.
• The resolution and the altered memorandum clause.
• SECP filings and acknowledgements.
• Bank evidence of the consideration received.
• Register of members, updated.
• Share certificates issued, with counterfoils.
• Pre-emption offers and waivers in writing.

These take minutes to maintain and are close to impossible to reconstruct convincingly. See appointing and removing directors for the same discipline applied to board changes.

Pricing the new shares

Where new shares are issued to an incoming investor rather than existing members pro rata, the price matters to everyone already on the register.

• Issuing at par where the company is worth more dilutes existing shareholders in value, not just percentage.
• Issuing at a premium reflects the company's value; the premium is accounted for separately.
• Document the basis of the valuation used.
• Consider a valuation report for a significant investment.
• Address it in the shareholders' agreement if one exists.
• Take tax advice where shares are issued at a price that may be questioned.

Family and closely held companies routinely issue at par because it is simple, and that is exactly what an aggrieved minority points to later - an allotment that transferred value from existing members to a newcomer without anyone addressing it.

Where existing shareholders will be diluted, get their informed written consent or follow the pre-emption process properly. A dilution nobody objected to at the time because nobody explained it is a dispute waiting for the company's first successful year - see shareholders' agreements.

Planning ahead

1. Check your headroom before you need it.
2. Build in headroom when incorporating or increasing, within a sensible fee.
3. Time the increase before a transaction, not during it.
4. Allow for the meeting notice period in the timetable.
5. Confirm what a counterparty actually requires - authorised or paid-up.
6. Take advice where investment is involved on structure and documentation.

Fees are generally scaled to the size of the increase, so there is a genuine trade-off in how much headroom to create. Discuss it once with a lawyer or company secretary rather than repeating the exercise every time the company grows.

Frequently asked questions