Increase Authorised Share Capital
The capital that is specified in the company’s memorandum as being the maximum amount of the share capital of the company is referred to as “Authorized Capital” in accordance with Section 2(8) of the Companies Act of 2013.
Before issuing additional equity shares and raising paid-up capital, a company may need to increase the authorised share capital. The total amount of shares a company is permitted to issue is known as authorised share capital. The total value of the issued shares of the company is the paid-up capital of the company.
PROCEDURE OF INCREASING AUTHORISED SHARE CAPITA
In the case of a private limited company, the procedure for increasing the authorised share capital is prescribed under Section 61 of the Companies Act of 2013, a private limited company with a share capital may change the capital clause in its Memorandum of Association (MoA) by passing an ordinary resolution in a general meeting, only if their Articles of Association (AoA) grants the permission to do so. Within 30 days, Form No. SH-7 shall be filed to the ROC.
1. Check if AOA has permission for increasing the authorized share capital
It is vital to check the AOA to make sure that there is a provision in the Articles of Association related to the expansion of the authorised share capital before beginning the procedures for doing so. The company must first make amendments to the AOA of the company if there is no such provision.
2. Hold a Board Meeting
To enhance the company’s authorised share capital, a Board meeting must be called and notice shall be given to the director. To increase the authorised share capital, the Board of Directors must provide their consent at the meeting.
3. Hold an Extra-Ordinary General Meeting
Once the board has approved the increase in authorised share capital, the company must call for an Extraordinary General Meeting (EGM) of the shareholders. All shareholders must receive notice of the EGM at least 21 days prior to the meeting.
4. Pass a Ordinary Resolution
At the EGM, the shareholders must pass an ordinary resolution to approve the increase in authorised share capital.
5. Submit ROC forms
The company must file Form E-SH-7 within 30 days of the passing of the ordinary resolution in the meeting of members with the Registrar of Companies.
REASONS FOR INCREASE IN AUTHORISED SHARE CAPITA
- The need for addiitonal funds
- Financing the company's new projects
- Merger of two enterprises and their cash infusion as part of an arrangement strategy
- Additional share capital issuance
- Debt is converted to equity capital.
- To fulfil the legal requirements.
DOCUMENTS REQUIRED FOR INCREASE IN AUTHORISED SHARE CAPITAL
The documents must be filed with the MCA within 30 days after obtaining consent from the shareholders for the share capital increase.
- Digital signature of a director who is authorized by board resolution to file the EForm SH-7.
- CTC of Board Resolution to approve the authorized share capital increase.
- CTC of Ordinary Resolution to take consent of the members of the company along with explanatory statement.
- A copy of the altered Memorandum of Association (MOA).
- A copy of the altered Articles of Association (AOA), only if AOA needs changes
FREQUENTLY ASKED QUESTIONS (FAQ'S)
1.In which clause of the MOA the authorized share capital is mentioned?
The authorized share capital of the Company is mentioned in Clause V of the MOA.
2.Which forms are required for increasing the authorized share capital of the Company?
Form MGT 14 (only is special resolution is passed) and SH 7 are required to be filed with the Registrar within 30 days from the date of passing the resolution for the increase in authorized share capital.
3.When should the authorized share capital increase?
A company is required to increase the authorized share capital before issuing the new equity shares and increasing the paid-up capital. The Authorized share capital is the total value of the shares a company can issue.
4.What is the minimum authorized shared capital?
There is no such minimum limit.
5.Is it necessary to conduct a board meeting for increasing the authorized share capital?
Yes, it is necessary to increase the authorized share capital of the company.
5.What is the procedure for increasing the authorized share capital?
Verify the AOA Convene Board meeting, Extraordinary general meeting and File ROC forms Allotment of shares.
6.What are the attachments of E-form SH-7?
-CTC of Board resolution passed in board meeting, Notice of board meeting
-CTC of Ordinary Resolution passed in Extra-ordinary general meeting, notice of extraordinary general meeting.
-Altered copy of Memorandum of Association.
-Altered copy of Articles of Association.
-First subscriber sheet to be attached in E-MOA
7.What is reason behind increasing authorizing share capital?
The company increase this when it is in need for raising additional funds, issuing additional shares or to meet any regulatory requirement and it enables the company to sell more shares in future.
8.What needs to be done if the AOA of the company does not permit to increase the authorized share capital?
The company in the case must alter its AOA by following procedure the procedure of Section 14 of the Companies Act, 2013.
9.Is MGT-14 required to filed in case of private company also?
No, private company does not need to file E-form MGT-14 with ROC as they are only need to file all the resolutions in E-form SH-7 with the ROC.
10.What is the purpose for filling the SH-7 form?
It is filled to notify the ROC providing details of the increase and relevant documents
