Increase Authorized Capital

Company Authorized Capital Increase

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 in the long run, the company will require more funds. For a Private Limited Company, this can be done by increasing the company's authorised capital. 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.

IndiaFilings makes it easy to increase your company's authorised capital. Our experts guide you through every step, ensuring a hassle-free experience.

What is Authorized Capital?

According to Section 2 (8) of the Companies Act 2013, “Authorized Capital” is the capital authorised by the company's memorandum to be the maximum amount of the share capital of the company.

Authorised and Paid-Up Capital of a Company

Authorised share capital represents the total potential value of shares a company can issue. In contrast, paid-up capital is the actual value of shares that have been fully issued, subscribed to, and paid for by shareholders. The company cannot exceed its authorised share capital with its paid-up capital.

Authorised Share Capital Increase

Authorized share capital increase refers to raising the maximum amount of share capital that a company is legally permitted to issue to its shareholders. This is typically achieved through an amendment to the company's Memorandum of Association (MOA).

Amending the MOA for Increasing Authorized Capital

During formation the initial authorised and paid-up capital levels are established in the company's MOA. To issue new shares beyond that cap, an amendment to the MOA is required.

Reasons for Increasing Authorized Share Capital

• Addressing significant financial needs
• Funding new business initiatives
• Facilitating mergers or acquisitions
• Issuing additional shares
• Converting debt into equity

Documents Required for Authorized Share Capital Increase

Specific documentation must be submitted within 30 days following shareholder approval to formalise an increase in authorised share capital. For private companies, this involves submitting the resolution through e-form SH-7, while the submission of e-form MGT-14 is not required in some cases — ensure the following documents are prepared:

• The latest amended version of the MOA
• Updated AoA if applicable
• Copy of the ordinary resolution approved by shareholders

Procedure to Increase Authorized Share Capital

The process involves reviewing AoA, convening board meeting, passing resolutions, conducting EGM and filing required forms (MGT-14, SH-7) within prescribed timelines.

Regulatory Filings

After resolutions, file Form MGT-14 (if applicable) and Form SH-7 within 30 days along with supporting documents, stamp duty payment and applicable fees.

Penalties for Non-Compliance

Late filing of SH-7 attracts penalties (e.g. Rs.1,000 per day for delays in SH-7) subject to caps. Section 450 also covers penalties for other non-compliances.

Procedure & Documents Summary

• Certified true copy of resolution (EGM)
• Updated MOA with altered capital clause
• Form SH-7 and payment of stamp duty and ROC fees

FAQ's on Authorized Capital Increase