As the business begins to pick up, the company may look to expand its operations, expand in size, scale or structure. To make that dream a reality, it may require the pumping in of more funds into the company, basically increasing the share capital of the company. Sometimes, the amount of capital required might surpass the limit of the authorised capital at the time. The authorised capital is the maximum amount of capital for which the Company can issue shares to the shareholders.
As per Section 2(8) of the Companies Act, 2013, the Authorised Capital limit is specified in the Memorandum of Association under the Capital Clause. A company may take the necessary steps required to increase the authorised capital limit in order to issue more shares, but it cannot issue shares exceeding the authorised capital limit in any case.
Authorised Share Capital - Overview
An Authorised share capital determines the maximum number of shares a private business can issue. According to the 2013 New Companies Act, there is no minimum capital increase requirement. The capital clause of the Memorandum of Association is updated by the board approving an ordinary resolution in order to issue additional shares or increase the authorized share capital.
This sum of increase in share capital varies from business to business and could alter, but only with the consent of shareholders. Let’s say a firm has an authorised capital of ₹2 lakhs; in that case, it follows that it can issue shares for up to ₹2 lakhs. However, because it is flexible, this allowed capital may be increased or decreased as needed. Let’s imagine a firm has ₹1 lakh in allowed capital, but an investor wishes to put in ₹1 crore. In this case, the company can raise its authorised capital to ₹1 crore. The permitted share capital increase for company registration is covered here.
Why Increase Authorized Capital?
A company may want to increase its authorized capital to:
- Issue more shares
- Raise additional funds for business expansion
- Attract new investors
- Meet regulatory or business needs
Example:
If a company’s authorized capital is ₹10 lakh and it needs to issue more shares, it must increase its authorized capital to avoid legal violations.
Guidelines for Increase in Authorised Share Capital
- ₹5 lakhs for including the phrases Hindustan, Bharat, and India in the company name.
- ₹10 lakhs for the use of the phrases ‘Enterprise’, ‘Products’, ‘Business’, and ‘Manufacturing’ in the company name.
- ₹10 lakhs for the use of the phrases ‘Enterprise’, ‘Products’, ‘Business’, and ‘Manufacturing’ in the company name. ₹50 lakhs for the use of the phrases global, intercontinental, continental, Asian, and international in the company’s name.
- Bharat, Hindustan, and India were paid ₹50 lakhs to be the first word in the firm name.
- For employing words like ‘international’, ‘global’, ‘universal’, ‘continental’, ‘intercontinental’, ‘asiatic’, and ‘industry’ anywhere in the firm name, as well as ‘udhyog’ and ‘industry’, the fine is ₹1 crore.
- ₹ 5 Crore if the company name contains the word ‘Corporation’ even once.
Documents Required for Increase in Authorised Share Capital
Specific documentation must be submitted within 30 days following shareholder approval to formalise an increase in authorised share capital. For private companies, this involves submitting the resolution through e-form SH-7, while the submission of e-form MGT-14 is not required. Ensure the following documents are prepared for filing.
- Digital signature certificate Online: A copy of a DSC from any authorised director of the company
- Memorandum of Association: A copy of the modified or latest version of the MoA
- Articles of Association: A copy of the modified or latest version of the AoA
- Certificate of incorporation: A copy of the company’s incorporation certificate
- PAN card: A copy of the company’s PAN card.
Procedure to Change the Authorised Capital
Perform a read-through of the Articles of Association
The Articles of Association is the document that contains the rules and regulations regarding the internal working of the company. So, before any action can be taken regarding the increase/reduction in the authorised capital, the Articles of Association must be verified to check whether a provision exists that allows for a change in the authorised capital of the company.
If the provision exists, then the process becomes simplified. However, if the provision does not exist, then the Articles of Association must be amended first as set out under Section 14 of the Companies Act, 2013 (“Act”), and then only can the company proceed with the alteration of authorised capital.
Board Meeting to be conducted
- Notice to be sent to the directors regarding the agenda of the meeting at least 7 days prior to their respective registered addresses.
- At the Board Meeting, pass a Board Resolution to call for an Extraordinary General Meeting and issue notice pursuant to the provision of Section 101 of the Act, where the altered clause on authorised capital in the Memorandum of Association can be presented for approval by passing an Ordinary Resolution. The proposed amendment shall be in accordance with the provisions as set out under Section 60 of the Act.
- Notice to be given to the shareholders regarding the particulars of the meeting, including the agenda, date, time and place of the meeting.
- The notice must specify the method of voting to be adopted for the passing of the resolution at the Extraordinary General Meeting.
- Notice of the Extraordinary General Meeting is to be issued to all of the following:-
- Directors
- Shareholders
- Auditors
- The notice of the EGM has to be given not less than 21 days prior to the date on which the EGM is to be held. However, a shorter notice period can be given if and only if the consent is given by not less than 95% of the members who are entitled to vote at the meeting. The consent has to be obtained either through:
- Writing
- Electronic mode
Holding the Extraordinary General Meeting
Once the meeting is in session, the matter of the increase in the share capital is presented forth. Voting then takes place in a predetermined manner to come to a conclusion regarding the matter. Once the approval has been obtained, and the resolution is passed, the explanatory statement to the same is attached, and the increase in the Authorised Capital is made.
Filing with the Registrar of Companies
In less than 30 days of the resolution being passed, a company must file eForm SH-7 and eForm MGT – 14 (if applicable) along with the prescribed fees with the Registrar.
1. Form MGT – 14: This form has to be filed with the RoC first within 30 days of passing the respective resolution. The form is to be filed on the MCA portal, with the following details:
- Details of the company, including its CIN.
- Purpose concerning which the form is being filed.
- Date of dispatch of the notice.
- Date of passing the resolution.
- Details regarding the resolution.
- Digital Signatures and DINs wherever necessary.
The following attachments are to be provided:
- Notice of the EGM along with the Explanatory Statement as per Section 102.
- Certified copy of the resolution passed in the EGM.
- Copy of the new MOA (change made in the Capital Clause).
- Copy of the new AOA (provision for the increase in authorised share capital).
2. Form SH – 7: This form has to be filed with the RoC within 30 days of passing the respective resolution. The objective of this form is to intimate the Registrar regarding the details of the increase in the authorised capital. The form is be filed on the MCA portal, with the following details:
- Details of the company, including its CIN.
- Type of resolution.
- Date of the meeting.
- Service Request Number (SRN) of Form MGT – 14 already filed.
- Details regarding amount of original authorised share capital and amount of new authorised share capital.
- Details regarding the breakup of the additional share capital.
- Particulars regarding the Stamp Duty Fees paid.
- Digital Signatures and DINs wherever necessary.
The following attachments are to be provided:
- A certified true copy of the resolution for the alteration of capital.
- Copy of the new MOA (change made in the Capital Clause).
- Copy of the new AOA (in case of alteration to include provision for the increase in authorised share capital).
- Any other optional attachment, if any. The forms must be submitted within the time period stipulated in order to avoid any penalties or subsequent punishment wherein the company as well its officers will be held liable.
FAQs
What happens if a company does not file Form SH-7 on time?
If a company fails to file Form SH-7 within the prescribed 30 days, it may face:
- Late filing penalties from the RoC.
- Legal consequences under the Companies Act, 2013.
- Restrictions on issuing new shares until compliance is completed.
Is there a fee for increasing authorized capital?
Yes, the company must pay stamp duty and RoC filing fees, which vary based on the amount of the increase. The fees are calculated based on the slab prescribed under the Companies Act.
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