Authorised Capital Increase

Company Authorized Capital Increase

Every business may need additional funds as it grows. Short-term requirements can be met through loans and advances, while a Private Limited Company may address long-term funding needs by increasing its authorised capital.

Because changes to a company's capital structure are governed by the Companies Act, the prescribed rules and procedures must be followed.

LegallensIndia guides companies through each stage of increasing authorised capital.

What Is Authorized Capital?

Section 2(8) of the Companies Act, 2013 defines authorised capital as the capital authorised by a company's Memorandum to be the maximum amount of its share capital.

A company can issue share capital only up to this authorised limit. If it needs to issue shares beyond the existing ceiling to support expansion or raise more funds, it must first increase its authorised capital.

Authorised Capital and Paid-Up Capital

Paid-up capital cannot exceed authorised capital. When the paid-up amount reaches the authorised limit, a company can either increase authorised capital before issuing new shares or arrange a transfer of existing shares to new shareholders.

Authorised Share Capital Increase

An authorised capital increase raises the maximum share capital that a company may legally issue. This generally requires an amendment to the Capital Clause of the Memorandum of Association.

Increasing the limit allows the company to issue additional shares to existing or new shareholders for expansion, new projects, or changing financial requirements.

Amending the MOA

The company's initial authorised and paid-up capital are established in its Memorandum of Association at incorporation. To issue shares beyond that authorised ceiling, the company must amend the MOA and raise the capital threshold before issuing the additional shares.

Reasons for Increasing Authorised Capital

• Meeting significant financial requirements.
• Funding new business initiatives.
• Supporting mergers, acquisitions, or restructuring.
• Issuing additional shares.
• Converting debt into equity.
• Satisfying applicable regulatory requirements.

Documents Required

The required filing and supporting documents must be submitted within 30 days of shareholder approval.

• The latest amended Memorandum of Association.
• The latest or revised Articles of Association when the AOA has been altered.
• A certified copy of the Ordinary Resolution approved by shareholders.
• The EGM notice and Section 102 explanatory statement.
• Other optional documents where required.

The supplied content states that a private company files the resolution through Form SH-7 without Form MGT-14, while its later filing procedure also describes MGT-14 where applicable.

Procedure to Increase Authorised Share Capital

Step 1: Review the Articles of Association

Check whether the AOA authorises a change in the company's authorised capital.

If the required provision is absent, amend the AOA under Section 14 of the Companies Act, 2013 before modifying the authorised capital.

Step 2: Convene a Board Meeting

Send every director a Board Meeting notice containing the agenda at least seven days in advance at their registered addresses.

At the meeting, pass a resolution to convene an Extraordinary General Meeting and approve issuing the notice under Section 101.

The proposed Ordinary Resolution seeks shareholder approval for the revised Capital Clause in the Memorandum of Association.

Step 3: Notify the Members

The EGM notice must state the agenda, date, time, venue, and voting method and be sent to directors, shareholders, and auditors.

Issue the notice at least 21 days before the EGM. A shorter notice is permitted with written or electronic consent from at least 95% of members entitled to vote.

Step 4: Conduct the EGM

Present the authorised-capital increase to the meeting and conduct voting in the manner described in the notice.

The Ordinary Resolution is passed after receiving the required shareholder approval. Prepare an explanatory statement describing the resolution and its implications and retain it with the official records.

Step 5: Complete ROC Filings

Within 30 days of the resolution, submit the applicable forms, attachments, and fees to the Registrar of Companies.

The supplied procedure describes Form MGT-14 for registering the relevant resolution where applicable and Form SH-7 for reporting the authorised-capital increase.

Step 6: Pay E-Stamp Duty

Pay the required e-stamp duty on the increased authorised share capital through the Ministry of Corporate Affairs portal.

Form MGT-14 Details

Where MGT-14 applies, it is filed with the Registrar within 30 days of adopting the relevant resolution.

Information Required

• Company information, including the Corporate Identification Number.
• Purpose of filing.
• Dates on which notice was dispatched and the resolution was passed.
• Details of the resolution.
• Required digital signatures and Director Identification Numbers.

Attachments

• EGM notice with the Section 102 explanatory statement.
• Certified copy of the EGM resolution.
• Updated MOA containing the revised Capital Clause.
• Updated AOA when it contains provisions concerning the capital increase.

Form SH-7 Details

Form SH-7 must be filed with the Registrar within 30 days of passing the resolution. It formally reports the increase in authorised share capital.

Information Required

• Company information, including CIN.
• Resolution type and meeting date.
• MGT-14 Service Request Number when that form has already been filed.
• Original and revised authorised-capital amounts.
• Breakdown of the additional share capital.
• Stamp-duty payment details.
• Required digital signatures and DINs.

Attachments

• Certified true copy of the capital-alteration resolution.
• Updated MOA containing the amended Capital Clause.
• Updated AOA when a new capital-increase provision has been inserted.
• Any other optional document required for the filing.

Steps After Increasing Authorised Capital

Update the MOA and AOA

Update every copy of the Memorandum and Articles of Association so all company records consistently reflect the approved changes.

Allot Shares

After raising the authorised limit, the company can increase paid-up capital by issuing new equity shares to existing or new shareholders and bringing additional funds into the business.

Penalties for Non-Compliance

• Sections 61 and 65 provide for increases in authorised capital, while the supplied content refers to Section 450 for general non-compliance penalties.
• A company or officer that does not follow the prescribed requirements may face a penalty of ₹10,000.
• An additional penalty of ₹1,000 per day may apply while the violation continues.
• Late Form SH-7 filing may attract ₹1,000 for each day of delay after the 30-day filing period.
• The supplied content states that this continues until the default is corrected, subject to a maximum of ₹25 lakh or the lower applicable amount.

Why Choose LegallensIndia?

MOA Amendment Guidance

The team assists with revising the Memorandum so it accurately reflects the new capital structure.

MGT-14 Assistance

LegallensIndia handles Form MGT-14 filing where it is applicable to the capital change.

Form SH-7 Submission

The required Form SH-7 is prepared and submitted to record the authorised-capital increase officially.

End-to-End Support

Support covers the initial assessment, corporate approvals, document amendments, regulatory filings, and final submission.