As a rule, the capital of public joint stock companies could be increased at any time. However, the increase shall take place only by a resolution to be issued by an extraordinary general assembly.
This means the decision regarding capital increase shall, only, be taken by the shareholders themselves, because they are supposed to incur some financial liabilities to face the increase of the capital.
The resolution shall specify the amount of the increase and the issue value of the new shares. This indicates that the shareholders, before issuing such a resolution, shall be properly informed about the reasons and justifications for the increase and they shall be convinced before taking such important move.
Of course some shareholders may not be directly affected or concerned by the increase, however, the law stipulates that all shareholders should be involved through an extraordinary general assembly.
The timing and method for implementing the decision is normally left for the board of directors of the company who shall, along with the executive management, take the necessary steps for implementation and the timing for that. However, it should be noted that the law provides that the increase of capital shall take place within five years from the date of the resolution.
In case the board fails to implement the resolution within this period, then the resolution shall be deemed null and void and of no existence. In fact the law provides for five years because there are many practical difficulties in this regard and many companies have failed to achieve the increase, after taking the resolution, due to reasons related to the company itself or to the shareholders or may be due to reasons related to certain on-going projects that result in loss and failure instead of profit and success.
It is important to mention that the Commercial Companies Law stipulates that the capital of a public joint stock company shall not be increased unless the principal capital of the company has been fully paid and no portion is yet-to-be-paid. Of course, the logic behind this legal requirement is obvious and encourages companies to settle the unpaid portion before looking for an increase.
At certain times the government may see it appropriate to ask certain companies to increase their capital with the aim of strengthening the capital adequacy of those companies or due to other certain reasons.
In this case the company have no other choice and they should adhere to such government instructions within reasonable acceptable time, or alternatively those companies could join forces and merge with other companies so as to meet the government requirements.
To be continued.