An amount of authorised share capital is determined by the company’s size or structure during the establishment of the business.
However, if the company grows in the future, more investments in the business may be required. In order to raise additional funds, authorised share capital of the company has to be increased.
As per Section 2(8) of the Company’s Act, 2013, the total value of shareholding that a company is authorized to raise from its shareholders, within its provisions is referred to as authorised share capital.
Authorised capital of the company will either be equal to or higher than paid-up capital but never less than that. Investment into equity and preference shares is restricted to its authorised capital of the company. However, when calculating the company’s net worth, there is no contribution of authorised share capital.
Procedure To Increase in The Authorised Share Capital
Section 61 of the Company Act 2013 read with Section 13 and 64 governs the process of authorised share capital increase. The authorised share capital of a company could be managed to change with the consent of the shareholders. Some amount of the authorised capital may remain unused for future investments. While making changes to its authorised share capital, the company is required to follow the provisions of its AoA, MoA, and also obtain RoC approval.
Authorisation in Article of Association
- The first thing you need to do is check the company’s Article of Association to see if there are any provisions for increasing the authorised share capital.
- If the AoA does not include provisions to increase the authorised capital, we must first amend the articles under Section 14 of the Companies Act, 2013, before proceeding with the change or increase in authorised capital.
Call for the board meeting:
- A board meeting is a procedure for discussing the company issues with top management. It is legal and important in various terms for all businesses.
- Notice of the board meeting must be given 7 days prior. Any director or CS must sign the notice of a board meeting. The notice could be delivered electronically, by speed post, or by registered post.
- The fixed date, time, place, and agenda for this board meeting must be provided in advance.
- The purpose of this meeting is to decide the new authorised capital limit and obtain the principal approval of the directors.
Notify an EGM of shareholders:
- It is a mandatory process and needs full attention of the management.
- Extraordinary General Meeting is conducted to seek the approval of the company’s shareholders.
- The consent has to be taken in written or electronic mode.
- The EGM notice must be given 21 days in advance to all the shareholders.
- The notice of EGM must contain the agenda, time, and place, as well as a draft of the proposed special resolution.
Filing with the Registrar of Companies:
- This procedure necessarily requires the submission of Form MG-14 within 30 days of passing the resolution. The Eform will be available on the official website of the Ministry of Corporate Affairs.
- An ordinary resolution is a final decision by the majority voting rights, which needs to be at least 50%.
- Once introduced and accepted at the EGM, the ordinary resolution is presented to the Registrar of Companies for approval of the MG-14 form.
- The minutes of the Extraordinary General Meeting and a copy of the new MOA and AOA must be attached.
- Pay the form’s proposed fees as well.
Submission of SH-7 with the Registrar:
- This application must be submitted on the SH-7 form within 30 days of the respective resolution being passed. This eForm will also be available on the MCA portal.
- Its purpose is to notify the Registrar of details of the authorised capital increase.
- You will be able to increase your authorised share capital with the Ministry of Corporate Affairs only if this form is approved.
Documents required in SH-7 form:
- Copy of altered AOA and MoA.
- Notice of the EGM with an explanatory statement.
- Certified copy of an ordinary resolution passed in EGM.
- Copy of Board resolution.
- Any other optional attachments, if needed.
You’ll also have to pay stamp duty on the change and difference in the company’s authorised share capital. The amount of stamp duty varies depending on the state in which your registered office is located.
The highest limit of investment to put into the business is decided during the process of a private limited company registration. But an Article of association of a company must have a clause for the authorised capital increase. An increase in authorised share capital is required for issuing new share capital and introducing more capital into the company. This process could only be accomplished with the consent of the shareholders and the legal approval of the Registrar of Companies.
The entire procedure of authorised share capital increase is time-consuming. It takes patience, various documents, and consideration of every minor detail concerning this issue. Every attachment that is required must be sent within the time frame specified or a penalty will be imposed.
There are numerous details that must be considered during the authorised capital increase process. If you require the assistance of our experts, please contact us. JustStart is here to assist you with such complex procedures. Our goal is to add value to your company through our expertise. And assist you in resolving any issues you may be experiencing.
