Increase Authorized Capital of Company

Increase in Authorised Share Capital - An Overview:

An increase in the authorised share capital of a company means increasing the maximum amount of share capital that the company is authorised to issue, as specified in its Memorandum of Association (MOA). Authorised share capital is different from paid-up capital, which represents the amount of share capital subscribed and paid for by the shareholders.

A company may increase its authorised share capital when it proposes to issue additional shares, raise equity capital, bring in new investors, facilitate future fundraising or meet its capital requirements.

The procedure for increasing authorised share capital is primarily governed by Section 61 of the Companies Act, 2013, read with the applicable provisions relating to alteration of share capital, filing requirements and the company's Articles of Association (AOA). The company should first ensure that its AOA authorises an increase in authorised share capital. Where the AOA does not contain the necessary authority, the Articles may need to be altered before proceeding with the increase.

The increase is approved by the members in a general meeting in accordance with Section 61, followed by the necessary alteration of the capital clause of the MOA and filing of the prescribed forms with the Registrar of Companies (ROC).

What Is Authorised Share Capital?

Authorised share capital is the maximum amount of share capital that a company is authorised to issue, as stated in its Memorandum of Association (MOA).

For example, if a company has authorised share capital of ₹10 lakh and intends to issue shares exceeding the existing authorised capital, it must first increase its authorised share capital before making such an issue.

Important: An increase in authorised share capital does not by itself increase the company's paid-up capital. Paid-up capital increases only when the company subsequently issues and allots shares, subject to the applicable provisions of the Companies Act, 2013.

Why Increase the Authorized Capital of a Company?

1. Issuing of additional shares
2. Raise of fresh equity capital
3. Bringing in new investors
4. Support business expansion
5. Increase paid-up capital
6. Facilitate future fundraising
7. Issue shares to existing shareholders
8. Meet funding requirements
9. Provide capital flexibility
10. Support corporate restructuring

Eligibility for Increasing Authorized Capital:

1. The company must be registered under the Companies Act, 2013.
2. Its Article of Association permits an increase in authorized capital.
3. If required, the AOA is altered before increasing the capital.
4. The shareholders approve the increase through the required resolution.
5. The company complies with applicable ROC filing requirements.
6. Applicable government fees and stamp duty are paid.
7. The revised authorized capital is properly recorded in the company's MOA and statutory records.

Documents Required for Increasing Authorized Capital:

1. Certificate of Incorporation of the company
2. Memorandum of Association (MOA)
3. Article of Association (AOA)
4. Board Resolution
5. Notice of General Meetings
6. Shareholder's Resolution
7. Updated MOA, where applicable
8. Details of existing and proposed authorized capital
9. SH-7 filing details and supporting documents
10. Digital Signature Certificate (DSC) of the authorized signatory

Procedure to Increase Authorized Capital of Company:

Companies can increase authorized capital online by completing the prescribed corporate approvals, updating the MOA and filing the required forms with the Registrar of Companies (ROC). The authorized capital increase procedure generally involves the following steps:

1. Check whether the Article of Association permits an increase in authorized capital.
2. Approve the proposal and authorize the necessary steps.
3. Send notice to shareholders for obtaining their approval.
4. Pass the required resolution for increasing authorized capital.
5. Update the capital clause of the MOA to reflect the revised authorized capital.
6. Submit SH-7 with the Registrar of Companies (ROC) along with applicable fees and documents.
7. Record the revised authorized capital in the company's statutory registers and records.
8. After completing the capital increase, the company can proceed with issuing additional shares, subject to applicable requirements.

ROC Form for Increase in Authorized Share Capital:

Form SH-7 is filled out with the Registrar of Companies to notify the increase in a company's authorized share capital. The company must submit the form within 30 days of passing the shareholder resolution along with the required documents and applicable government fees. Once approved, the revised authorized capital is recorded in the company's MCA records.