Increase Authorized Capital

Increase Authorized Capital - An Overview

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A private company's authorised capital specifies the maximum number of shares it may sell. There is no minimum capital required as per new Companies Act of 2013. To issue new shares or to raise the authorised capital, the capital clause of the Memorandum of Association is amended by passing an ordinary resolution by the board.Each business needs more funds over time to run business. These funds can be required on a long- and short-term basis. A short-term need can be satisfied by taking loans and advances. But for the run, the company will require more funds. For a Private Limited Company, this can be done by increasing the authorized capital of the company. Since the private limited company is governed and regulated under the Company Act to make changes in the structure it is necessary to follow the Act and the rules stated.

What is authorized capital?

According to Section 2 (8) of the Companies Act, 2013 “Authorized Capital” is the capital that is authorized by the memorandum of the company to be the maximum amount of the share capital of the company. The company can expand its business to the level of the authorized capital. In case the company has to expand the business infusing more funds than at first, the company has to increase the authorized capital by following the steps that are mentioned in this article.

Authorized Share Capital increase

A company may need to increase the authorized share capital before it is issuing new equity shares and increasing the paid-up capital. As authorized share capital is the total value of the shares a company can issue. The paid-up capital is the total value of the shares of the company that have been issued. The Paid-up capital does not exceed the authorized capital. Hence, if the company has authorized capital of Rs.10 lakh and paid-up capital of Rs.10 lakhs would like to induct new shareholders then it can be done by:

  • Increasing the Authorized share capital and issuing new shares (or)
  • Transferring shares from the existing shareholders to the new shareholders.

    • Checklist For Increasing Authorised Capital

  • Check the provisions of the AoA to increase authorised share capital
  • If the AoA does not permit an increase, then the AoA must be modified as per Section 14 of the Companies Act of 2013
  • Issue a notice for calling a board meeting to modify the AoA in order to approve the increase in authorised share capital
  • Issue a notice for calling an extraordinary general meeting to modify the AoA in order to approve the increase in authorised share capital
  • Issue the notice at least 7 days before the board meeting and 21 days before the EGM.

    • Procedure to Increase the Authorised Capital of a Company

  • Check if the company's AoA allows it to raise its authorised capital. If the AoA is not authorised, you must pass a special resolution to amend it
  • Convene, hold, and conduct an EGM on the designated date, place, and time, and pass a resolution seeking shareholder approval. If any forms are needed, they must be submitted within a certain time frame
  • Alter the company's Memorandum of Association to raise the authorised share capital
  • Within 30 days of passing the shareholders' resolution, file form SH-7 with the registrar of companies. If the resolution is passed as a special resolution, you must also file form MGT-14 within 30 days of the resolution's passage.

    • Benefits

  • Increases Share CapitalA company can raise whatever authorised capital as they decide upon and the same will be mentioned in the MoA with revisions. Hence, increasing authorised capital has an incremental effect on the overall company share capital.
  • Enhances Borrowing CapacityWith the increase in share capital, the company’s overall net worth also increases. This further enhances the borrowing capacity of the company.

    It could invite investments as the same can be easily accommodated if there is enough authorised capital.

    • Documents Required for share capital

    The documents must be filed with the MCA within 30 days after obtaining consent from the shareholders for the share capital increase. The standard resolution for private firms is merely SH-7, and MGT-14 is not required.

  • Digital signature certificate: A copy of a DSC from any authorised director of the company
  • Memorandum of Association: A copy of the modified or latest version of the Moa
  • Articles of Association: A copy of the modified or latest version of the AoA
  • Certificate of incorporation: A copy of the company’s incorporation certificate
  • PAN card: A copy of the company’s PAN card.