Process for Increase in Authorized Share Capital

Do You want to increase the authorized share capital? Or want to know about Authorized Share Capital of a company. Then, this article will provide you with all the fundamental details on a company’s authorized share capital as well as the Process for Increase in Authorized Share Capital.

Introduction

Each business requires more funds to operate over time. These funds maybe needed in the long and short term. Loans and advances can meet a short-term need. However, more funds will be required for the run in a longer duration. For a Private Limited Company, this can be accomplished by increasing the company’s authorized capital. Because the private limited company is governed and regulated by the Company Act, any changes to the structure must adhere to the Act and the rules stated in the Companies Act, 2013.

Meaning of Authorized Share Capital of a Company

The authorized share capital of a company is the maximum amount of share capital that the company is permitted to issue to shareholders under its constitutional documents. A portion of the authorized capital may remain unsold. The authorized capital can be changed with the approval of the shareholders.

The Authorized Capital limit is specified in the Memorandum of Association under the Capital Clause, as per Section 2(8) of the Companies Act, 2013. A company may take the necessary steps to raise the authorized capital limit in order to issue more shares, but it may never issue shares that exceed the authorized capital limit. However, if the company wishes to increase its authorized capital, it must make amendments to the MOA.

Features of Authorized Share Capital

• The authorized capital is determined at the time of the company’s formation and incorporation.
• ROC fees will rise in accordance with the amount of approved capital.
• Authorized Capital of a company needs to be specified in the MOA and AOA of a Company.
• The authorized share capital is the maximum amount of capital that a company can have and is used to determine the nominal value of each share.
• It can be modified at any moment after the company’s establishment.
• The company’s net worth cannot be calculated using authorized capital.
• A firm does not have to issue shares up to its authorized capital; it can issue shares with a lower value.

Process for Increase in Authorized Share Capital

Modification in the AOA (Articles of Association) of the company

The Articles of Association are the rules and regulations that govern the internal operations of the company. So, before any action regarding the increase/reduction in the authorized capital can be taken, the Articles of Association must be modified to see if there is a provision that allows for a change in the company’s authorized capital.

If the provision exists, the process is streamlined. If the provision does not exist, the Articles of Association must first be amended in accordance with Section 14 of the Companies Act, 2013, and only then can the company proceed with the change in authorized capital.

Conduct a Board Meeting

• The agenda for the meeting must be sent to the directors at least 7 days in advance to their respective registered addresses.
• Pass a Board Resolution calling for an Extraordinary General Meeting and issuing notice in accordance with Section 101 of the Act, where the altered clause on authorized capital in the Memorandum of Association can be presented for approval by passing an Ordinary Resolution. The proposed amendment must adhere to the provisions outlined in Section 60 of the Act.
• The shareholders must be given notice of the meeting’s specifics, including the agenda, date, time, and location.
• The method of voting to be used to pass the resolution at the Extraordinary General Meeting must be specified in the notice.
• The following people will be given notice of the Extraordinary General Meeting:
  • Auditors
  • Directors
  • Shareholders
• The notice of the EGM must be given at least 21 days before the date of the EGM. However, a shorter notice period maybe given if and only if the consent of at least 95% of the members entitled to vote at the meeting is obtained. Consent must be obtained in one of two ways:
  • Electronic Mode
  • Writing

Holding EGM (Extra Ordinary General Meeting)

When the meeting begins, the issue of increasing the share capital is brought up. Voting then occurs in a predetermined order to reach a decision on the matter. Once the approval is obtained and the resolution is passed, the explanatory statement is attached, and the Authorized Capital is increased.

Filing Forms with ROC (Registrar of Companies)

A company must file eForm SH-7 and eForm MGT – 14 (if applicable), along with the prescribed fees, with the Registrar within 30 days of the resolution being passed.

Form MGT – 14

This form must be filed with the RoC within 30 days of the resolution being passed. The form must be submitted to the MCA portal with the following information:

1. Information about the company, including its CIN.
2. The reason for which the form is being filed.
3. The notice’s dispatch date.
4. The date on which the resolution was passed.
5. Specifics about the resolution.
6. DIN and Digital Signature, wherever there is a need.

The following documents needs to be attached with the Form MGT 14:

1. Notice of the EGM, as well as the Explanatory Statement required by Section 102 of the Companies Act, 2013.
2. A certified copy of the EGM resolution was passed.
3. A cop of the new MOA.
4. A copy of the new AOA (provision for the increase in authorized share capital).

Form SH – 7

This form must be filed with the RoC within 30 days of the resolution being passed. The purpose of this form is to notify the Registrar of the details of the increase in authorized capital. The form is submitted to the MCA portal with the following information:

1. Information about the company, including its CIN.
2. Resolution type.
3. The meeting’s date.
4. Form MGT – 14 already has a Service Request Number (SRN).
5. Details on the original authorised share capital and the new authorised share capital.
6. Details on how the additional share capital will be divided.
7. Particulars of the Stamp Duty Fees Paid
8. Wherever possible, use digital signatures and DIN (Director Identification Number).

The following documents needs to be attached with the Form SH 7:

1. A certified true copy of the resolution for capital change.
2. A copy of the new MOA.
3. A copy of the new AOA (in case of alteration to include provision for the increase in authorized share capital).
4. Any additional optional attachments, if any.

The forms must be submitted within the time frame specified to avoid penalties or subsequent punishment for which the company and its officers will be held liable.

Final thoughts

The company can expand its operations up to the amount of authorized capital. If the company needs to expand its operations by injecting more funds than initially, it must increase its authorized capital by following the above steps outlined in this article.