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.
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.
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.
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.
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.
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.
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:
The following documents needs to be attached with the Form MGT 14:
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:
The following documents needs to be attached with the Form SH 7:
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.
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.
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