Increase Authorized Capital Share
Company Authorized Capital Increase
Every business needs funds to run smoothly and grow. While short-term funding needs can often be met with loans or advances, a company’s long-term financial requirements are best supported by increasing its capital. For Private Limited Companies, one effective way to raise these funds is by increasing the company’s authorized capital.
As a company governed by the Companies Act, any changes to the company structure, including increasing its authorized capital, must follow the procedures outlined in the Act and its regulations.
At Corp File, we make the process of increasing your company’s authorized capital straightforward and stress-free. Our experts will guide you every step of the way, ensuring full compliance and a smooth experience.
What is Authorized Capital?
As per Section 2 (8) of the Companies Act 2013, authorized capital refers to the maximum amount of share capital that a company is allowed to raise as specified in its memorandum of association. This is the upper limit of funds the company can issue in the form of shares.
If the company needs to raise more funds to support expansion or additional investments beyond its initial capital, it must increase the authorized capital to accommodate these changes.
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Authorized and Paid-Up Capital of a Company
Authorized share capital refers to the maximum value of shares a company is allowed to issue as per its legal documents. It sets the upper limit on how much capital a company can raise by issuing shares. On the other hand, paid-up capital represents the actual amount that has been paid by shareholders for the shares issued to them. This is the portion of the authorized capital that has already been utilized.
A company cannot issue shares beyond its authorized share capital. If the paid-up capital reaches the limit of the authorized share capital and the company wants to bring in new shareholders, it has two options:
- Increase the authorized share capital and then issue additional shares.
- Allow the transfer of shares from existing shareholders to new ones.
These options allow the company to raise further capital or change its ownership structure without breaching legal limits.
Authorized Share Capital Increase
Authorized share capital increase refers to raising the maximum amount of share capital a company is allowed to issue to its shareholders. This typically happens by amending the company’s Memorandum of Association (MOA) to allow for a higher capital limit.
When a company opts for an increase in authorized capital, it can issue more shares, whether to existing or new shareholders. This is commonly done to raise funds for business growth, finance new projects, or meet evolving financial needs.
Amending the MOA for an Authorized Capital Increase
When a Private Limited Company is formed, the initial authorized and paid-up capital amounts are set in the company’s Memorandum of Association (MOA). This defines the maximum share capital the company can issue. If the company needs to raise more funds by issuing additional shares, it must amend the MOA to increase the authorized share capital limit. This allows the company to issue more shares beyond the original cap, ensuring it can meet its financial and expansion goals.
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Why Your Business Should Consider an Authorized Share Capital Increase
Increasing your authorized share capital can be a key step in securing your business’s growth and financial stability. Companies may choose to raise their authorized capital for several reasons, including:
- Addressing significant financial needs: To raise funds for expansion or other operational needs.
- Funding new business initiatives: To support new projects or ventures without the need for external loans.
- Facilitating mergers or acquisitions: Infusing capital into the company as part of a restructuring plan or during a merger or acquisition.
- Issuing additional shares: To offer more shares to investors, increasing ownership and financial resources.
- Converting debt into equity: Reducing debt by converting it into company shares.
- Meeting regulatory requirements: Some businesses may need to meet specific capital requirements under local regulations.
Steps to Increase Your Authorized Share Capital
Increasing your company’s authorized share capital is a strategic move, but it requires following specific steps to ensure everything is done correctly and legally. Here’s a simple guide to the procedure:
1. Review the Articles of Association (AoA)
The Articles of Association define your company’s governance, including rules around capital management. The first step is to check whether your AoA already allows changes to the authorized capital.
2. Check for a Provision to Modify Capital
If your AoA already includes a provision for altering the authorized share capital, the process will be straightforward. If not, you’ll need to update the document.
3. Amend the AoA if Required
If there is no provision in the AoA, it must be amended according to Section 14 of the Companies Act, 2013, to include the ability to modify the authorized capital.
4. Proceed with the Capital Increase
Once the AoA allows for the change, your company can officially proceed with increasing the authorized capital, following all necessary legal and regulatory steps.
By following these simple steps, you can successfully increase your authorized share capital and ensure your company is positioned for future growth.
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Convene a Board Meeting for an Authorized Capital Increase
To initiate an authorized capital increase, it’s essential to follow a clear process. Below are the key steps for convening a board meeting and preparing for the required extraordinary general meeting (EGM).
Notice for Board Meeting
A notice outlining the agenda of the board meeting must be sent to all directors at least 7 days in advance. This ensures that everyone is well-informed and prepared for the discussion. The notice should be dispatched to their registered addresses.
Board Resolution
During the board meeting, a resolution will be passed to call for an extraordinary general meeting (EGM). In line with Section 101 of the Companies Act, the board will issue a notice to present and seek approval for the revised authorized capital clause in the company’s Memorandum of Association. The approval will be sought via an Ordinary Resolution, as per Section 60 of the Act.
Shareholder Notification
It’s crucial to inform shareholders about the details of the upcoming EGM, including the date, time, venue, and agenda. The notice should also include instructions on how shareholders can vote to approve the proposed authorized share capital increase.
Distribution of EGM Notice
Ensure the EGM notice is distributed to:
- Directors
- Shareholders
- Auditors
EGM Notice Period
The notice for the EGM should be sent out at least 21 days before the meeting. However, if at least 95% of the voting members agree, a shorter notice period can be accepted. Consent can be obtained either in writing or electronically.
By following these steps, your company will be on track to successfully increase its authorized capital and make necessary legal changes with ease.
Conducting the Extraordinary General Meeting (EGM) for Authorized Capital Increase
When your company decides to increase its authorized share capital, an Extraordinary General Meeting (EGM) is a necessary step in the process. Here’s how the meeting unfolds:
- Agenda Presentation: The proposal for the increase in authorized capital is presented to the shareholders during the EGM. This is the formal introduction of the matter at hand.
- Voting Process: Shareholders will vote on the proposed Company Authorized Capital Increase as specified in the EGM notice. The voting will follow the procedures outlined in the notice, ensuring transparency.
- Resolution Approval: If the necessary votes are secured, the resolution to approve the Authorized Share Capital Increase is passed. This signifies that the capital increase is officially approved by the shareholders.
- Documentation: A detailed explanatory statement, which outlines the resolution and its impact, is prepared and added to the company’s official records, marking the completion of the capital increase authorization.
This process ensures that the increase in authorized capital is conducted in a legally compliant and transparent manner.
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Regulatory Filings for an Authorized Capital Increase with ROC
After passing the resolution for an Authorized Capital Increase, your company must complete the required filings within 30 days to comply with regulations. These filings are necessary to update your company’s records with the Registrar of Companies (RoC) and ensure everything is in order.
Filing of Form MGT-14
Form MGT-14 must be submitted to the RoC within 30 days of the Company Authorized Capital Increase resolution being adopted. This is a crucial step in legally formalizing the increase in authorized share capital.
Details Required:
- Company Information including Corporate Identification Number (CIN)
- The purpose of the filing
- Dates when notice was dispatched and when the resolution was passed
- Specifics of the Authorized Capital Increase resolution
- Digital signatures and Director Identification Numbers (DINs) are mandatory
Documents Required:
- Notice of the Extraordinary General Meeting (EGM) with the Explanatory Statement under Section 102
- Certified copy of the EGM resolution
- Updated Memorandum of Association (MoA) reflecting the alteration in the Capital Clause
- Updated Articles of Association (AoA) if the document includes provisions related to the Authorized Capital Increase
These filings ensure that the increase in authorized capital is properly recorded and legally compliant, helping your company move forward smoothly.
Filing Form SH-7 for Your Company's Authorized Capital Increase
When you decide to increase your [Authorized Capital Increase], one of the key steps is filing Form SH-7 with the Registrar of Companies (RoC). This needs to be done within 30 days of passing the resolution to increase your company’s authorized share capital. The form notifies the RoC of the changes made to your company’s authorized capital structure.
Details Required for Filing:
- Your company information, including the CIN (Corporate Identification Number).
- The type of resolution passed for the capital increase.
- Date of the meeting where the resolution was approved.
- Service Request Number (SRN) for Form MGT-14, if it has already been filed.
- Original and new authorized share capital amounts.
- Breakdown of the new additional share capital.
- Stamp Duty Fees details.
- Digital signatures and DINs as required.
Documents You Need to Submit:
- A certified true copy of the resolution that approved the capital increase.
- Updated MoA (Memorandum of Association) with the new capital clause.
- Updated AoA (Articles of Association) if a new provision for capital increase is added.
- Any additional documents, if necessary.
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Payment of E-Stamp Duty:
The next step is to pay the e-stamp duty for the augmented Authorized Share Capital via the Ministry of Corporate Affairs (MCA) Portal, as mandated by law.
This process ensures that your company authorized capital increase is officially recognized, legally compliant, and properly documented with the Registrar of Companies.
Documents Needed for an Authorized Share Capital Increase
Once the authorized share capital increase has been approved by the shareholders, certain documents must be submitted within 30 days to formalize the process. For private companies, this includes submitting the necessary forms and resolutions to the relevant authorities.
Ensure the following documents are prepared for filing:
- The latest version of the Memorandum of Association (MoA)
- The most recent copy of the Articles of Association (AoA), especially if any changes were made
- A copy of the ordinary resolution approved by the company’s shareholders
This documentation ensures that the increase in authorized share capital is legally recognized and processed efficiently.
Next Steps After an Authorized Share Capital Increase
Once your authorized share capital has been increased, it’s important to follow the necessary steps to ensure smooth execution and meet legal requirements.
Update the MOA and AOA
After the increase in authorized capital, it’s crucial to update the Memorandum of Association (MOA) and Articles of Association (AOA). These foundational documents need to reflect the changes in your company’s capital structure to remain legally compliant and consistent with the new capital limits.
Share Allotment
With the authorized share capital now raised, the next step is to increase your paid-up share capital. This is typically done by issuing new shares to existing shareholders or new investors, bringing additional funds into your company to fuel growth or expansion.
Penalties for Failing to Comply with Authorized Capital Increase Procedures
If a company doesn’t follow the required steps for increasing its authorized capital, there are consequences. While the Companies Act 2013 (Sections 61 and 65) explains how to carry out an authorized capital increase, it doesn’t mention penalties directly in these sections. However, Section 450 of the Act covers penalties for non-compliance.
Here’s what happens if a company or its officers fail to meet the requirements:
- A penalty of Rs. 10,000 is imposed for not following the rules.
- A daily penalty of Rs. 1,000 will be added if the violation continues until the issue is fixed.
- If there is a delay in submitting Form SH-7, which must be done within 30 days after the resolution to increase authorized share capital, the penalty will be Rs. 1,000 per day of delay.
- This penalty continues until the default is corrected, but the maximum penalty is capped at Rs. 25 lakh (whichever is lower).
It’s crucial to adhere to these procedures to avoid costly fines and ensure smooth business operations.
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Why Partner with Corp File for Your Authorized Capital Increase?
When it comes to increasing your company’s authorized capital, Corp File is the trusted partner you need. We offer a comprehensive range of services to help you navigate the process smoothly and efficiently. Here’s why we are the right choice:
- Expert Guidance for MOA Amendment: We help you with the complex process of amending your Memorandum of Association (MOA) to ensure it reflects your new authorized share capital.
- Hassle-Free MGT-14 Filing: Our team takes care of filing Form MGT-14, ensuring that the changes in your company’s capital are registered with the Registrar of Companies without any delays.
- Smooth SH-7 Submission: We handle the filing of Form SH-7, which is required to officially record your increase in authorized capital.
- Complete End-to-End Assistance: From initial consultation to final submission, we offer full support, ensuring a smooth and compliant process for your company authorized capital increase.
With Corp File, you can count on a seamless and stress-free experience, backed by expert advice and a commitment to your business’s growth.