According to the Companies Act, 2013, authorised share capital is the largest amount of capital a company can issue to its shareholders. One of the important decisions you might have to take at the time of starting a company is figuring out the amount of authorised share capital you need to raise from shareholders.
Sooner or later, every company has to increase its authorised capital. If you also want to learn how to increase authorised capital, this is the right article for you.
What is the process to increase authorised capital?
Companies generally decide to increase authorised capital when there is a need to expand the business and a huge influx of capital is needed. With a jump in authorised capital, your company can also apply for more credit from banks and other financial institutions.
Here is a detailed guide on how to increase authorised capital for your business:
Step 1: Check Articles of Association
Your company’s Memorandum of Association and Articles of Association hold the key to changing the authorised capital. Articles of Association (AoA) is a legal document that has details such as its scope of business, purpose, internal rules, and regulations, among other things. A Memorandum of Association (MoA) includes the company’s by-laws, etc.
While creating the Articles of Association, every company has to mention the authorised capital it will need in its lifetime. Generally, it has a clause that allows for increasing or reducing the authorised capital.
So, the first step to making changes to the authorised capital is to check whether the AoA and MoA allow for it.
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If the Articles of Association does not have the provision to change authorised capital, you need to make amendments to the Articles of Association. These changes have to be made as prescribed by section 14 of the Companies Act, 2013, by passing a special resolution.
Step 2: Approval of the board of directors
Any changes to be made in authorised capital is subject to the approval of the company’s board members.
You need to send a notice to all the board members to convene a meeting. The notice must be sent seven days before the meeting and must have the details of the agenda. The altered clause on authorised capital in the Articles of Association should get the board’s approval.
Once the board approves the changes in the AoA, it has to pass an ordinary resolution to call for an Extraordinary General Meeting (EGM). The details of the EGM must be sent to the company’s directors, shareholders, and auditors.
You should note that the notice to convene an EGM must be sent 21 days before the proposed meeting date. Although, if you need to have the EGM before 21 days, 95% of the shareholders have to give their consent in writing or via email.
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Step 3: Extraordinary General Meeting
During the EGM, shareholders have to discuss the reasons to increase the authorised capital and then vote on the matter. Once 50% of the board members have voted in favour of increasing the authorised capital, the resolution is passed.
Documents needed for authorised capital
Once the board has passed the resolution during the EGM, your company is required to inform the Registrar of Companies (RoC) within 30 days about increasing the authorised capital.
Here is the list of documents you have to submit to the RoC:
Form MGT – 14
This form is to be filed on the MCA portal, with the following details:
- Company details, including the 21-digit Corporate Identification Number
- Purpose of the form
- A copy of the passed ordinary resolution
- A copy of the resolution passed during the EGM
- Details of the resolution
- A copy of the updated Memorandum of Association and Articles of Association that shows provisions for increasing the authorised capital
- Digital signatures and DINs wherever necessary
- Notice prepared by the EGM
Form SH – 7
Form SH-7 is filed to inform the RoC about the details of the increase in the authorised capital. You are supposed to file this form on the MCA website along with attaching the following details:
- Company details, including the 21-digit Corporate Identification Number
- Type of Resolution
- Meeting date
- Service Request Number (SRN) of Form MGT – 14
- Mention the original authorised share capital and the new authorised share capital approved by the board of directors
- Breakup of the additional share capital
- Particulars regarding the Stamp Duty fees paid
- Digital signatures and DINs wherever necessary
- Original certified copy of the resolution passed regarding the capital alteration
- A copy of the updated Memorandum of Association and Articles of Association that shows provisions for increasing the authorised capital
After filling out the forms, RoC will process your application. If RoC finds everything fine, it will approve the increase in authorised capital and update the master data on the MCA website.
Frequently Asked Questions
Question: Why is it important to increase authorised capital?
Answer: There is a limit to how much authorised capital a company can offer shareholders to raise money. Whenever a company needs to raise capital from the public and if the threshold has been reached, it will have to increase its authorised capital to raise more money.
Question: Is there a limit to how much a company can increase its authorised capital?
Answer: There is no limit to the authorised capital that a company can decide to raise. The amount is decided by the board of directors during the EGM.
Question: What happens if Form SH – 7 and Form MGT – 14 are not filed within 30 days of the EGM?
Answer: You can still file these forms to the Registrar of Companies, but you will have to pay a fine.
