Increasing Authorized Capital: Procedure and Compliance

Introduction

Companies often require additional funds to support business expansion, attract investors, or increase their shareholding capacity. However, before issuing shares beyond the existing limit, a company must complete the process of increasing its authorized share capital as per the provisions of the Companies Act, 2013.

Increasing Authorized Capital allows a company to increase the maximum share capital it is authorised to issue. It does not mean that the company has immediately received additional funds. The actual funds are received only when shares are issued and subscribed by shareholders.

The process involves checking the Articles of Association (AOA), obtaining shareholder approval, altering the capital clause of the Memorandum of Association (MOA), and completing the required filings with the Ministry of Corporate Affairs (MCA).

What Is Authorized Capital?

Authorized capital refers to the maximum share capital that a company is authorised to issue as mentioned in its Memorandum of Association. For a detailed understanding of the concept, structure and significance of authorized share capital of a company, businesses can refer to the relevant guide.

A company cannot issue shares beyond its existing authorized capital limit. Therefore, if a company plans to issue additional shares exceeding the available limit, it must first complete the process of Increasing Authorized Capital. For example, if a company has an authorized capital of ₹10 lakh and wants to issue shares worth ₹20 lakh, it must increase its authorized capital before proceeding with the share issue.

Difference Between Authorized Capital and Paid-Up Capital

Why Do Companies Need to Increase Authorized Capital?

Companies may require an increase in authorized share capital due to various business requirements, such as:

• Raising funds through issue of additional shares.
• Bringing new investors or shareholders into the company.
• Increasing paid-up capital through further share allotment.
• Supporting business expansion plans.
• Issuing shares through permitted methods such as private placement or rights issue.

Companies planning fundraising through ownership restructuring may also require proper documentation such as a shareholders agreement to define rights, responsibilities, and ownership terms.

When Is Increasing Authorized Capital Required?

A company needs an authorized capital increase procedure when it plans to issue shares beyond its existing authorized capital limit.

For example, if the authorized capital of a private limited company is ₹5 lakh but the company wants to issue additional shares exceeding this limit, it must first increase its authorized capital.

The process of increasing authorized capital is different from increasing paid-up capital. Increasing authorized capital only increases the company’s capacity to issue shares, whereas paid-up capital increases when shareholders subscribe to and pay for shares.

The authorized capital structure is generally decided during private limited company registration and can be increased later based on business requirements.

Legal Provisions for Increasing Authorized Capital

The process of Increasing Authorized Capital is governed by the Companies Act, 2013.

Section 61 of the Companies Act, 2013

Section 61 deals with alteration of share capital. A company limited by shares can increase its authorized share capital if:

• The Articles of Association authorise such increase.
• Shareholders approve the alteration through the required resolution.

If the Articles of Association do not permit the increase, the company must first complete the required alteration of AOA. Section 61 broadly deals with alteration of share capital, and companies should understand the applicable alteration of share capital provisions before proceeding with the proposed change.

Section 64 of the Companies Act, 2013

Section 64 requires a company to file notice with the Registrar of Companies (ROC) regarding alteration of share capital.

The company must file the required details with ROC within the prescribed period after the alteration of share capital.

Conditions Before Increasing Authorized Capital

Before proceeding with an increase authorized capital of company process, the company should ensure:

• The Articles of Association allow the increase in authorized capital.
• Necessary alteration of AOA is completed if required.
• Shareholders’ approval is obtained.
• The capital clause of MOA is updated.
• Required MCA filings are completed.

Maintaining updated capital records is also an important part of post-incorporation compliances after Pvt Ltd registration.

Procedure for Increasing Authorized Capital

1. Check Articles of Association

The company must first verify whether the Articles of Association contain provisions allowing an increase in authorized capital.

If such provisions are not available, the company must alter the AOA before proceeding further.

2. Conduct Board Meeting

The company conducts a Board Meeting to:

• Approve the proposal for increasing authorized capital.
• Decide the proposed increase amount.
• Approve the notice for obtaining shareholders’ approval.

The company should also ensure that the proposed capital alteration follows the applicable corporate approval and filing process. A detailed process for increasing authorized share capital can help companies understand the procedural sequence.

3. Obtain Shareholders’ Approval

The company must obtain shareholders’ approval through an ordinary resolution passed at a general meeting, provided that the AOA already authorises such increase.

If alteration of AOA is required, the company must complete additional compliance requirements applicable for alteration of Articles.

4. Alter Memorandum of Association

Since authorized capital is mentioned in the capital clause of the MOA, the company must alter the MOA to reflect the revised authorized capital structure.

The updated MOA forms part of the required MCA filing process.

5. Complete Form SH-7 Filing With MCA

A company must complete Form SH-7 filing with the Registrar of Companies after passing the required resolution.

Form SH-7 is filed for notifying ROC about alteration of share capital under Section 64 of the Companies Act, 2013.

The form includes details such as:

• Existing authorized capital.
• Increased authorized capital.
• Details of shareholder approval.
• Revised share capital structure.

The company must file Form SH-7 with ROC within 30 days from the date of alteration of share capital along with applicable fees and attachments.

Documents Required for Increasing Authorized Capital

The documents generally required include:

• Board resolution.
• Shareholders’ resolution.
• Notice of general meeting.
• Altered Memorandum of Association.
• Altered Articles of Association, if applicable.
• Revised capital structure details.
• Digital Signature Certificate (DSC) of authorised signatory.

Fees for Increasing Authorized Capital

The fees for Increasing Authorized Capital depend on the amount by which the authorized capital is increased and the applicable MCA fee structure.

Additional stamp duty may also apply depending on the state where the company is registered.

The overall cost may include:

• MCA filing fees.
• Stamp duty charges.
• Professional service charges.

Increasing Authorized Capital vs Increasing Paid-Up Capital

Mistakes While Increasing Authorized Capital

Companies should avoid the following mistakes:

• Issuing shares beyond existing authorized capital.
• Not checking AOA provisions before starting the process.
• Failing to obtain proper shareholder approval.
• Filing incorrect details in Form SH-7.
• Not updating MOA after approval.
• Ignoring applicable stamp duty requirements.

Benefits of Increasing Authorized Capital

Increasing authorized capital helps companies:

• Raise additional funds through future share issues.
• Bring new investors into the company.
• Support business expansion plans.
• Maintain flexibility for future fundraising.
• Manage capital restructuring efficiently.

Companies planning to issue additional shares may also consider compliance requirements related to a rights issue of shares depending on the fundraising method selected.

How Ebizfiling Helps With Increasing Authorized Capital?

Increasing authorized capital involves multiple compliance steps, including drafting resolutions, updating company documents, and completing MCA filings.

Ebizfiling assists companies with the complete process of Increasing Authorized Capital, including documentation preparation, MOA alteration support, resolution drafting, and MCA filing assistance.

Our experts help businesses complete the compliance process efficiently while ensuring that required legal requirements are properly followed. Companies planning to issue additional shares may also consider compliance requirements related to a rights issue of shares for private companies depending on the fundraising method selected.

For free consultation call us on 09643203209 or email info@ebizfiling.com

Conclusion

Increasing Authorized Capital is an important compliance process that allows companies to increase their capacity to issue shares beyond their existing authorized capital limit.

The process requires compliance with the Companies Act, 2013, including checking AOA provisions, obtaining shareholder approval, altering the MOA, and completing Form SH-7 filing with the Registrar of Companies.

Companies planning expansion, fundraising, or future share issuance should complete the authorized capital increase process properly to ensure regulatory compliance and smooth capital management.

Frequently Asked Questions