- Increase Authorized Capital
- Documents Required for Increase Authorized Capital
- Authorized Capital Increase with ROC
- Penalties of Authorized Capital Increase
Increase in Authorized Capital
Authorized Capital is the maximum amount of share capital a company can issue as per its memorandum. To expand beyond this limit, the company must increase its authorized capital.
This concise summary captures the essence of Authorized Capital and its implications for expanding a company's business operations..
Authorised and Paid-Up Capital of a Company
Authorised share capital represents the total potential value of shares a company can issue. In contrast, paid-up capital is the actual value of shares that have been fully issued, subscribed to, and paid for by shareholders. The company cannot exceed its authorised share capital with its paid-up capital. Therefore, if a company's paid-up capital reaches the limit of its authorised capital and it aims to welcome new shareholders, it has two options.
Either increase its authorised share capital and then issue new shares or Facilitate the transfer of shares from current shareholders to new ones.
Authorised Share Capital Increase
Authorised share capital increase refers to raising the maximum amount of share capital that a company is legally permitted to issue to its shareholders. This is typically achieved through an amendment to the company's Memorandum of Association (MOA)
By increasing the authorised share capital, a company expands its capacity to issue additional shares, enabling it to raise funds from existing or new shareholders. This process is often undertaken to support business expansion, finance new projects, or meet evolving financial needs.
Documents Required for Authorized Share Capital Increase
Specific documentation must be submitted within 30 days following shareholder approval to formalise an increase in authorised share capital. For private companies, this involves submitting the resolution through e-form SH-7, while the submission of e-form MGT-14 is not required. Ensure the following documents are prepared for filing:
The latest amended version of the Memorandum of Association (MoA).
The most recent or revised copy of the Articles of Association (AoA), particularly in cases where the AoA has been altered.
A copy of the ordinary resolution approved by the company's shareholders.
Procedure to Increase Authorized Share Capital
The process involves several essential steps to ensure compliance with regulatory requirements and secure shareholder approval for the proposed increase.
Check for Provision:The process is straightforward if the AoA includes a provision for altering authorized capital. Otherwise, the AoA needs amending.
Amend the AoA if Necessary: In the absence of a provision, amend the AoA as per Section 14 of the Companies Act, 2013, to include the capability for authorized capital alteration.
Proceed with Capital Modification: Once the AoA allows it, the company can officially change its authorized capital.
Authorized Capital Increase with ROC
Post-resolution, within 30 days, the company must complete the following filings along with the applicable fees.
Filing of Form MGT – 14:
This form must be submitted to the Registrar of Companies (RoC) within 30 days following the adoption of the relevant resolution.
Details Required:
Company information including Corporate Identification Number (CIN):
The purpose of the filing.
Dates of notice dispatch and resolution passage.
Resolution specifics.
Digital signatures and director identification numbers (DINs) are required
Documents Required:
Notice of EGM with the Explanatory Statement under Section 102.
Certified copy of the EGM resolution.
Updated Memorandum of Association (MoA) reflecting the Capital Clause alteration.
Updated Articles of Association (AoA) if it includes provisions for authorised capital increase.
Filing Form SH-7 for Authorized Capital Increase
Form SH-7 must be submitted to the Registrar of Companies (RoC) within 30 days following the resolution to increase the authorised share capital. This form notifies the Registrar about the specifics of the authorised capital augmentation.
Details Required:
Company information, including CIN.
Resolution type.
Meeting date.
Service Request Number (SRN) of Form MGT – 14, if already filed.
Original and new authorised share capital amounts.
Breakdown of the additional share capital.
Stamp Duty Fees details.
Digital Signatures and DINs as necessary.
Documents Required
A certified true copy of the capital alteration resolution.
Updated MoA with the Capital Clause changes.
Updated AoA if it includes a new provision for capital increase.
Any other optional documents, if required.
Penalties for Non-Compliance with Authorized Capital Increase Procedures
While the Companies Act 2013, specifically in Sections 61 and 65, outlines the provisions for increasing authorised capital, it doesn't directly specify penalties within these sections. However, Section 450 of the Act addresses penalties for general non-compliance.
When a company or its officers fail to adhere to the prescribed rules, a penalty of Rs. 10,000 is imposed.
An additional daily penalty of Rs. 1,000 is levied for ongoing violations until the issue is resolved.
Specifically concerning the late submission of Form SH-7, which is required within 30 days of the resolution to increase authorised capital, the penalty accrues at Rs. 1,000 per day of delay.
This penalty continues until the default is corrected, subject to a maximum cap of Rs. 25 lakh, whichever amount is lower.