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Authorized Capital Increase
Definition: Authorized capital (also called nominal or registered capital) is the maximum amount of share capital a company is permitted to issue to shareholders as per its Memorandum of Association (MOA). Increasing authorized capital involves amending the MOA to allow the company to issue more shares, as governed by the Companies Act, 2013 in India.
Purpose of Increasing Authorized Capital
• Business Expansion: Facilitates raising funds by issuing new shares for growth, acquisitions, or new projects.
• Investor Requirements: Meets conditions for attracting investors or venture capital.
• Regulatory Compliance: Aligns capital structure with statutory or operational needs.
• Flexibility: Provides room for future share issuances without repeated amendments.
Legal Framework
• Governed by Section 61 (power to alter share capital) and Section 13 (MOA amendment) of the Companies Act, 2013.
• Requires compliance with the Companies (Share Capital and Debentures) Rules, 2014.
1. Verify MOA:
o Check the existing authorized capital in the MOA’s capital clause (Clause V).
o Ensure the proposed increase aligns with business objectives.
2. Convene Board Meeting:
o Issue a notice for a Board of Directors meeting (as per Section 173).
o Pass a resolution to:
o Approve the increase in authorized capital.
o Propose amendment to the MOA’s capital clause.
o Call an Extraordinary General Meeting (EGM) for shareholder approval.
o Fix the date, time, and agenda for the EGM.
3. Hold General Meeting (EGM):
o Issue a 21-day clear notice to shareholders for the EGM (as per Section 101).
o Pass a special resolution (75% majority of shareholders present and voting, as per Section 114(2)) to:
o Approve the increase in authorized capital.
o Authorize amendment to the MOA.
o Draft explanatory statement under Section 102, detailing reasons for the increase.
4. File Forms with Registrar of Companies (ROC):
o Form SH-7: File within 30 days of passing the special resolution to notify ROC of the capital increase.
o Attachments: Amended MOA, special resolution, and notice of EGM.
o Form MGT-14: File within 30 days to register the special resolution for MOA amendment.
o Attachments: Certified copy of special resolution, amended MOA, and explanatory statement.
o Pay applicable ROC fees based on the increased capital amount (varies by state and capital size).
5. Pay Stamp Duty:
o Pay stamp duty as per the applicable state’s Stamp Act for the increased authorized capital.
o Stamp duty varies by state and must be paid before or at the time of filing Form SH-7.
6. ROC Approval:
o ROC reviews the filings and issues a certificate of approval, updating the company’s records.
o The increased authorized capital is effective post-ROC approval.
7. Update Records:
o Update all copies of the MOA to reflect the new authorized capital.
o Notify relevant stakeholders (e.g., banks, investors) of the change.
• Minimum Capital: No minimum authorized capital is mandated for private or public companies under the Companies Act, 2013 (amended from earlier requirements of INR 1 lakh for private and INR 5 lakh for public companies).
• Fees: ROC filing fees depend on the increased capital amount and are calculated as per the Companies (Registration Offices and Fees) Rules, 2014.
• Compliance: Ensure alignment with MOA, AOA, and Companies Act provisions. Non-compliance may lead to penalties under Section 450.
• Board and Shareholder Approval: Mandatory for legal validity of the increase.
• Notice of EGM.
• Certified copy of the special resolution.
• Amended MOA reflecting the new capital clause.
• Form SH-7 and Form MGT-14.
• Proof of stamp duty payment.
• Consent letters or other documents as required by ROC.
• No Impact on Issued Capital: Increasing authorized capital does not automatically increase issued or paid-up capital unless new shares are issued.
• Cost Implications: Higher authorized capital may increase ROC fees and stamp duty.
• Timeframe: The process typically takes 15-30 days, depending on ROC processing and compliance.
• Professional Assistance: Engage company secretaries or legal experts (e.g., Compliance India) for accurate filings and compliance.
• Post-Increase Actions: If new shares are issued post-increase, comply with Section 62 (further issue of shares) and file Form PAS-3 with the ROC.
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