Increase Authorized Share Capital under the Companies Act, 2013
Every business requires a strong team to move things around and keep the business running without any interruption. But to run a business smoothly, you would need a significant amount of funds. If you wish to run your business smoothly by increasing your company’s Authorised Share Capital, let JustStart’s expert legal consultants assist you. JustStart offers you credible assistance in increasing your company’s Authorised Share Capital in no time.
- Hassle-Free Process
- Quick Return Filing
- Experienced Legal Experts
Get an Increase in Authorised Capital With JustStart
Submit your details to talk to our business representatives. We will clear all your doubts
Get Expert Advice!
4.8 star all time rating
4.8 star all time rating
OVERVIEW
What is Authorised Share Capital?
Authorised share capital is the highest amount of capital a company can legally distribute among its stockholders. It can be described in terms of Section 2(8) of the Companies Act, 2013, as the capital that a company registers in its memorandum to be the maximum amount of share capital of the company. This limit is mentioned in Clause V of the Memorandum of Association (MOA) and acts as a barrier beyond which a company cannot go.
It is essential to differentiate between authorised share capital and paid-up capital. The former is a limit set by the company, while the latter is the actual investment made by the shareholders in the form of shares that have been issued and taken up. A company may have an authorised capital of Rs. 50 lakhs but have only Rs. 20 lakhs as paid-up capital through the issuance of shares, thus leaving Rs. 30 lakhs for the issuance of shares in the future.
Why is it Necessary
Why Companies Need to Increase Authorised Share Capital?
_1768888501.webp)
Sharply rising and readily expanding enterprises have their financial needs changing. If an organization intends to issue fresh stocks beyond its presently permissible limit, firstly, it shall be put through the "increase of authorized share capital" process. This scenario is met when companies want to:
Get more money for their business expansion into new markets, and among others, they may need to open new product lines or modernize their infrastructure. Corporations that want to take strategic investors or venture capital business have to make the necessary arrangements for significant shares that can be issued, since their authorized capital must be large enough. Firms that are planning to offer stock options to their employees have to make sure that the authorized capital is sufficient for supporting the programs. When companies are considering acquiring or merging with others, they open up the need for increased capital flexibility to accommodate the transactions.
Reasons
Reasons for Increasing Authorised Share Capital?
Expanding a business often requires strategic steps, and one of these is increasing the Authorised Share Capital.
Here are key reasons why companies choose to raise their Authorised Capital:
Financing New Projects
To expand or launch new projects, companies often need additional funds. Increasing the authorised share capital allows companies to raise the necessary funds to support growth initiatives.
Meeting Fund Requirements
If your business requires substantial funding for expansion, operations, or other objectives, increasing authorised share capital can help secure the necessary capital.
Issuing Additional Share Capital
In certain cases, a company may need to reflect increased share capital on its balance sheet for organizational needs. Raising the authorised share capital enables the issuance of additional shares as required.
Complying with Legal Requirements
Sometimes, legal or regulatory obligations require companies to increase their authorised share capital to remain compliant with applicable laws and standards.
Benefits
Benefits of Share Capital Increase
✅ Facilitates Business Expansion and Growth
The raise of authorised share capital gives companies the power to easily and quickly raise more funds since these are no longer limits. This process is very important for enterprises going to the next step in their operations. The firm can issue new shares whenever needed, and no more hassle through the memorandum of association (MOA) amendment for investors.
✅ Attracts More Investors
The increase of authorised share capital improves the financial image of the enterprise and thus, it is to investors and the financial market more attractive. Firms with substantial authorised capital are considered strong financially and more capable to exploit the growth opportunities by the investors and financial institutions.
✅ Enhances Borrowing Capacity
The hike in authorised capital is a significant factor that greatly increases the ability of the company to borrow. Banks and financial institutions take into account the net worth of a company when determining if it is eligible for a loan and what the loan limit would be. A higher level of authorised capital encompasses the company's financial solidity on their balance sheet, and thus it becomes easier to obtain loans and credit resources.
✅ Enables Employee Stock Options and Incentive Schemes
The ability to do stock options and employee incentive schemes becomes much more possible in a company with a higher authorised capital. Companies can afford to pay their employees with equity as part of their competitive compensation package.
✅ Provides Multiple Financing Options
Companies with higher authorised capital have a wider range of financing strategy options available to them. Besides the classic equity issuance, companies are also allowed to issue convertibles and preferred shares that can later be turned into a fund that can be used for equity.
Documents Required
Documents Required for Increasing The Authorised Share Capital
While applying for an increase in authorized share capital, you should make sure that you're ready with all the supporting papers:
- A photocopy of the PAN Card of your company.
- True copy of the ordinary resolution of the EGM to be certified
- A resolution of the Board approving the process and empowering the officers to file documents
- The Extraordinary General Meeting's notice, along with the explanatory statement
- The Memorandum of Association is amended (the new authorised capital is shown clearly)
- The Articles of Association are amended (if any changes were made)
- A receipt for stamp duty payment
- One director’s Digital Signature Certificate (DSC) will be required for online filing.
_1768887175.gif)
Procedure
Increase Authorised Share Capital Through JustStart’s Quick Process
Easily increase your company’s Authorised Share Capital with JustStart’s efficient and hassle-free process. Our team of experienced legal consultants ensures your business remains compliant with all necessary legal formalities.
Step 1: Verify the Articles of Association
Before you start the process, check the company's Articles of Association (AoA) first. Make sure that it has a provision which allows to increase the share capital. Almost all the modern AOAs carry this provision but in case your company's AoA does not have this authorization, you will have to first amend it with a special resolution before you can increase the capital.
Step 2: Convene a Board Meeting
The Board meeting must be called with not less than seven days' notice to all the directors. At the meeting, the board must:
Discuss and approve the proposal for increasing the authorized capital, and determine the amount of the increase needed, and authorize the change to the Memorandum of Association. Moreover, the board must also set a date, time, and place for the Extraordinary General Meeting (EGM) to be held, and must also approve the draft notice and the explanatory statement to be sent to the shareholders.
Step 3: Issue EGM Notice
The company is obliged to give notice of the EGM not less than 21 days before the meeting date to all the shareholders, directors and auditors. The notice has to contain a clear explanatory statement setting out the reasons for the increase and the consequences for the shareholders.
Step 4: Conduct the Extraordinary General Meeting
At the EGM, you will have to make the proposal to the shareholders and also have a discussion on it. The shareholders are to pass an ordinary resolution to approve the increase in authorized capital. This resolution requires only a simple majority of the votes cast by the present and voting shareholders.
Step 5: Alter the Memorandum of Association
After the shareholders' approval, prepare a Revised MOA showing the increase in authorized capital. The change must be very well recorded and certified since this Revised MOA will be submitted to the Registrar of Companies.
Step 6: File Form SH-7 with ROC
This step is a necessity in the process of how to raise the authorised capital. File Form SH-7 (Notice of Alteration of Capital) with the Registrar of Companies within 30 days after the ordinary resolution has been passed. The following items should accompany this form:
The notice of the EGM, and a certified true copy of the ordinary resolution, the board resolution, and the amended Memorandum of Association. The altered Articles of Association (if applicable) and any extra documents needed by the ROC.
Step 7: Pay Stamp Duty
Increase in authorized capital stamp duty is a very important step in the overall process. The stamp duty is calculated as 0.15% of the increased authorized capital, with a maximum limit. States may differ in their rates and caps, so get the applicable rate in your state confirmed. For instance, in Maharashtra, the stamp duty structure may not be the same as in other states. This duty needs to be paid together with the submission of Form SH-7.
Step 8: Wait for ROC's Approval and Verification
The Registrar carefully reviews all documents and forms submitted. If everything is in order and the Companies Act, along with related rules, is followed, the ROC will approve the increase and issue a confirmation that will reflect the new authorised capital in the company's master data on the MCA portal.
Why Choose JustStart?
Why JustStart for Increasing Authorised Share Capital?
At JustStart, we provide effective legal solutions to ensure your business functions smoothly and grows successfully. Our team of experienced legal consultants specializes in increasing your Authorised Share Capital, helping you meet regulatory requirements and achieve business expansion goals. Whether you need company registration, compliance management, or capital infusion, JustStart’s experts have you covered.
Expertise in Legal Compliance
With years of experience, JustStart’s legal team has a deep understanding of the complexities involved in increasing Authorised Share Capital in India. We provide expert guidance through every step of the process, ensuring full compliance with the Companies Act, 2013, and the regulations of the Registrar of Companies (ROC).
Quick and Hassle-Free Process
We simplify the process of increasing Authorised Share Capital, making it quick and hassle-free. Our streamlined process includes everything from drafting resolutions to filing with the ROC, ensuring that you get the necessary approvals efficiently.
Comprehensive Service Offering
Beyond increasing Authorised Share Capital, JustStart provides a range of services to support your business growth, including private limited company registration, LLP registration, compliance management, and more. We are a one-stop solution for all your corporate legal needs.
Transparency and Client Communication
At JustStart, we believe in maintaining clear communication with our clients. You will always be kept informed about the progress of your Authorised Share Capital increase, with full transparency in the process and pricing.
Customer Satisfaction
Our clients’ satisfaction is at the heart of everything we do. We are committed to helping you achieve your organizational goals through efficient legal solutions. Our focus on customer service ensures that you receive the best possible experience while increasing your company’s Authorised Share Capital.
Cost-Effective Solutions
We understand the importance of cost-efficiency, which is why we provide affordable pricing for all our legal services. With JustStart, you can increase your Authorised Share Capital without breaking the bank.
Locations
Increase Authorised Share Capital in Other States and Cities
FAQs
LET'S CLEAR ALL THE DOUBTS!
To increase the Authorised Share Capital of your company, you will be required to fill Form MGT 14 and SH 7 within 30 days of passing the resolution for increasing the share capital of your company.
If you are looking to expand your business, you will be required to increase the Share capital of your company to infuse a heavy amount of funds into its expansion.
There is no minimum and maximum share capital prescribed under the law.
Yes it is absolutely necessary to have a board meeting before increasing the authorised share capital.
Authorized share capital is mentioned in Clause V of the Memorandum of Association (MOA).
Stamp duty on increasing authorised capital is calculated at 0.15% of the increased amount, subject to a state-specific maximum cap. For example, if you're increasing capital by Rs. 50 lakhs, the stamp duty would be Rs. 50,000 (0.15% of Rs. 50 lakhs). Different states have different caps—some cap it at Rs. 25 lakhs, others at Rs. 15 lakhs.
Authorised capital can be compared to the limit on a credit card, as it is the maximum amount your company is permitted to issue to shareholders according to the charter of your company. The other hand shows the paid-up capital, which is the total amount that the shareholders have actually invested in the company.
When you are out of the current authorized limit and are thus planning to issue new shares, then you need to increase your authorized capital. Some common situations are: when you are raising funds from new investors, and you need more shares issuance capacity, when you want to offer employee stock options but there is not enough authorized capital, when you are introducing a strategic partner for expansion, or when the lenders/investors require you to have an even higher authorized capital as a pre-condition of funding.
