Overview
In most of the cases when a new company is registered, they have the authorised capital as one or ten lacs. With increasing business, company may need more capital to infuse through existing shareholders, or through investor in most of the cases. It is important to note that paid up capital can not surpass the authorised capital figure. For this reason, it becomes essential to increase the authorised capital of the company.
A business without a funding source will flounder under the weight of its own debt. Funding is the fuel on which a business run. The nature of the funding can be debt or equity funding. Whenever a company chooses to go the equity route to raise the funding, it is then supposed to first check the value of share capital of the company. Almost in all the cases of the share subscription cases, fresh issues are issued to the new investor of the company and in all such cases where the ceiling of the authorized capital has already been reached, the company has to first undertake an increase in its authorised share capital.
Top reasons to Increase the Authorised Share Capital
- For the need of increasing Paid Up Capital- As the business grows, the company may look to expand its operations, expand in size, scale or structure and thus to issue more shares to shareholders or other investors. To make that dream a reality, it may require the pumping in of more funds into the company, basically increasing the paid-up share capital of the company which causes increase in authorised share capital too.
- For starting new business along with Existing- To open a subsidiary company, an existing business needs more capital to get off the ground. While most directors will use their own funds to start the business, very few manage to do it effectively by giving it from an existing company from their capital, and will therefore have to increase authorised capital.
"Authorised share capital" is the widest term used to describe a company's capital which is the total value of shares a company can issue to the shareholders. It comprises every single share of every category that the company could issue if it needed/ wanted to from time to time as per the requirements. The authorised capital of the company is the maximum capital, that a company can raise at any point in time. Basically, authorised capital is decided by the shareholders. This limit is outlined in its constitutional documents called Memorandum of Association (MOA) and can only be changed with the approval of the shareholders. At the time of Incorporation, the amount of Authorised Capital is decided by the Shareholders (Subscribers to the Memorandum of Association) of the Company and it is mentioned in the Capital Clause of the Memorandum of Association (MOA) of the Company.
HERE IS HOW IT LOOKS LIKE IN MOA
"V. The authorised share capital of the company is Rs. _________ (in words_____only) divided into ___ (in words____ equity shares of Rs. ___ (Rupees Ten only) each."
Some Important Key Notes while Changing/amending MOA & AOA
- At very First need to Check whether Articles of Association of Company contain a provision authorizing it to increase its authorized Share Capital.
- If you did not find such provision then before increasing authorised share capital, amend its articles to include such authorization under section 14;
- Company can increase its authorized share capital, only if it is authorized by its Articles of Association and after obtaining approval of members by ordinary resolution.
Documents Required to Increase Authroised Capital
- Existing MOA & AOA of the Company;
- Digital Signature of one of Authorized Director/Signatory;
- Some other documents which will be draft prepared by our team CCL and get finalize by the shareholders and board of the Company-
- Certified true copy of the resolution for alteration of capital is mandatory in case of increase in share capital independently by company;
- Altered memorandum of association is mandatory in case of increase in share capital independently;
- Altered articles of association is mandatory in case the same are altered to induce the provision for Authorised Capital.
Procedure to Increase Authorised Capital
Every business either big or small in size requires funds to run the business and to meet their business operations. Now if a Company desires to increase the Authorised Capital, they can do so only via passing an Ordinary Resolution subject to shareholders approval in EGM of the Company. Once company has altered its share capital independently then a return shall be filed with the registrar within 30 days of such alteration or increase in MCA eForm SH-7.
Alteration of MOA due to increase in Authorised Share Capital the following forms are required to be filed with the MCA:
- Capital Clause (Authorised Capital) - Form SH-7
- Change in Article of Association if any amendment is required to authorizing it to increase its authorized Share Capital and file the form MGT-14 for the alteration.
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SECTION 64 (1) OF THE COMPANIES Act, 2013 AND Rule 15 OF THE COMPANIES
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(Share Capital and Debentures) Rules, 2014
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S.NO.
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PROVISIONS
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COMPLIANCES
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1
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Applicability
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Every companies can increase its authorized share capital
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2
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Form
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SH-7
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3
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Time period
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The company has to intimate to the ROC within 30 days from the date of such increase in the authorised share capital of the Company
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4
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Attachments
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1.) Notice
2.) Altered memorandum of association
3.) Ordinary resolution
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5
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REQUIREMENTS
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1.) CIN
2.) E-mail ID
3.)Purpose of Form
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6
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Penal provision
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If a company and any officer of the company who is in default contravenes the provision of sub-section (1), it or he shall be punishable with fine which may extend to one thousand rupees for each day during which such continues, or five lakh rupees, whichever is less
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Process of increase in authorised share capital is governed by section 61 read with section 13 and 14 of Companies act 2013. Section 61 has a precondition that to increase authorised share capital, authorisation in article of association is a must. As per the section the company may alter its memorandum in its general meeting to—increase its authorised share capital by such amount as it thinks expedient.
Notice of alteration of Share Capital shall be filed by Company to the Registrar in Form no. SH.7 along with fees depending on the capital requirements and pay the stamp duty according to the State Stamp Act.
Step-1 Go through very First article of Association and check power
- AOA Must provide the power to increase the authorized capital of the company;
- If not given then alter the article of the company by passing a special resolution in general meeting of the company under section 14 and file the form MGT-14 with the ROC.
Step-2 Hold a Board Meeting and issue Notice to call EGM
- A Notice needs to be issued for conducting a Board Meeting at least 7 days prior to the board meeting;
- Notice shall contain the agenda of the EGM;
- Date, time and place should be fixed for holding a General Meeting and a Director needs to send the notice to all the members informing them about the same at least 23 days prior to EGM (21 Clear days and two days for dispatch & receiving).
- Draft altered MOA shall be prepared for the approval of shareholders in EGM;
- Authorization to One or more Directors to sign or certify all the required documents as and when required and filing with the concerned ROC in form SH-7.
Step-2 Hold an Extra Ordinary General Meeting and pass the Ordinary resolutions
- The quorum needs to be observed at the General Meeting for the approval by the members to alter capital clause of the Memorandum of association;
- Shareholder of the company required to pass the necessary ordinary resolution under Section 61(1)(a) of the Companies Act, 2013.
Step-3 File form SH-7 with ROC
- File form SH-7 within 30 days from passing Ordinary Resolution or EGM along with an altered copy of the memorandum of association with the Registrar in whose jurisdiction the registered office situated along with relevant fees as prescribed and stamp duty (as per state stamp act) is also need to pay which can be paid electronically.
Attachments in form SH-7-
- Certified true copy of the resolution for alteration of capital is mandatory in case of increase in share capital independently by company.
- Altered memorandum of association is mandatory in case of increase in share capital independently;
- Altered articles of association is mandatory in case the same are altered to induce the provision for Authorised Capital.
- Any other information can be provided as an optional attachment(s).
Step 4 Role of ROC after filing of form
- The Registrar will from thereon go for the verification process which means that he will first verify the filed form and the documents attached in form itself;
- Once the verification of the attachments or documents and the form is completed ROC will then approve the FORM SH-7 for increase in the authorized share capital of the company;
- The Registrar of Companies will accordingly register the changes made in the MOA as per the provision under companies Act 2013;
The alteration will be complete and effective only when the ROC will approve the form SH-7 and same has been updated on MCA Master data in capital row.
As per Section 2(8) of the Companies Act, 2013, ‘authorised capital’ or ‘nominal capital’ means such capital as is authorised by the memorandum of a company to be the maximum amount of share capital of the company.
Therefore, it is cleared via above mentioned definition that company can expand its business up to the level of authorised capital. If you want to expand your business by infusion of more funds then first you have to increase your authorised capital by following the few steps as mentioned below in the procedure to increase authorised capital.
Let us understand more in the form of Question and Answers
- What do we mean by Authorised share capital or Nominal Share Capital?
Authorised share capital means that maximum amount of money which company can raise through share capital. It is also known as nominal capital.
Yes, stamp duty is to be paid on increase in authorised share capital as per State Stamp Act.
- How much Time Roc takes for the Approval of SH-7?
Different ROC can take different time. However, generally it takes one to two weeks’ time as SH-7 is an approval-based form and not STP one.
- What documents are required to be attached to Form No. SH.7?
(a) Certified true copy of Ordinary Resolution along with Explanatory Statement for increase of authorised capital;
(b) Altered MOA;
(c) Altered AOA, if any
(d) Shorter notice consent, if meeting was convened at shorter notice
(e) Any other document, as may be applicable
GET IN TOUCH
If you want to proceed with increasing the authorised capital of your company or have any queries in this regard, you can let us know. Our Team will get back to you within 24 hours.
You can also email us at info@ccoffice.in or Connect at 9988424211
We have a team of Professionals who can help you in in all company compliance including authorised capital change. As a Professional Firm, we understand the requirement of our clients and help them in giving wings to business with all advisory which may be more apt for their business success. Talk to us to know how we can help you with your increasing authorised capital of your company.
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