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Increase Authorized Capital

Expand your capital, elevate your growth. Are you looking to raise funds or issue more shares? Increasing your company’s authorized capital is the first legal step. We help you navigate the process, from drafting board and shareholder resolutions to filing Forms SH-7 and MGT-14 with the Registrar of Companies. Whether you're expanding operations or restructuring equity, our expert assistance ensures seamless compliance and timely approvals.

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Increase Authorized Share Capital Online

One of the foundational aspects of a company is its capital structure, particularly the authorized share capital. This refers to the maximum limit of share capital a company is legally permitted to issue to shareholders, as specified in its Memorandum of Association (MoA). As a business expands, the need to raise additional funds or onboard new investors often arises. However, if the company has already exhausted its authorized capital, it cannot legally issue more shares unless it increases this ceiling. This limitation can hinder growth, especially when a company seeks funding for expansion, acquisitions, or meeting regulatory compliance requirements. In such situations, increasing the authorized capital becomes not only a strategic move but also a legal necessity. It enables the business to broaden its equity base, invite fresh investments, and adapt to its evolving financial needs.

What is Authorized Share Capital?

As per Section 2(8) of the Companies Act, 2013, authorized capital or nominal capital is “such capital as is authorized by the memorandum of a company to be the maximum amount of share capital of the company.”

In common parlance, Authorized Capital, also known as Nominal Capital, is the maximum amount of capital a company is legally allowed to issue to shareholders, as stated in its Memorandum of Association (MoA). This capital is not the actual paid-up amount, but rather a ceiling beyond which the company cannot issue shares unless it formally increases it through prescribed legal procedures.

Example:

If a company’s authorized capital is ₹10 lakhs, it cannot issue shares worth more than ₹10 lakhs unless it increases the authorized capital via an alteration of its MoA.

Types of Company Capital

Understanding the types of capital is essential before discussing an increase in authorized capital:

Authorized Capital: Maximum capital a company can issue, subject to approval of the MCA.
Issued Capital: Part of the authorized capital that has been offered to investors.
Subscribed Capital: Portion of issued capital that investors have agreed to purchase.
Paid-up Capital: Actual money received by the company from shareholders for the subscribed shares.

Legal Framework Governing Authorized Capital Increase

The increase in authorized capital is governed by:

Companies Act, 2013
Companies (Share Capital and Debentures) Rules, 2014
Companies (Incorporation) Rules, 2014
Articles of Association (AoA) of the company

Section 61 of the Companies Act, 2013, explicitly provides that a company having a share capital may alter its capital clause in the MoA to increase its authorized share capital, provided that it is permitted under the Articles of Association of the Company.

Why Increase Authorized Capital?

A company may decide to increase its authorized capital for several reasons, such as:

Raise Additional Funds: The company may issue more shares to secure additional capital for business expansion.
Attract New Investors: When a company seeks investments from venture capitalists, private equity firms, or new shareholders, it often needs to increase its authorized capital to issue new shares.
Mergers and Acquisitions: In mergers and acquisitions, companies may need to issue additional shares to the stakeholders of the merging entity to increase the authorized share capital.
Compliance with Regulatory Requirements: Certain regulatory frameworks, such as the Companies Act, 2013, SEBI Regulations, and Foreign Direct Investment (FDI) Policies, or contractual obligations, may require companies to maintain a specific level of authorized capital.

Without increasing the authorized capital, a company cannot legally raise more funds through equity beyond its existing limit.

Prerequisites Before Increasing Authorized Capital

Before initiating the process, the company must ensure the following:

Check Articles of Association (AoA): The company's AoA must authorize the increase in share capital. If the AoA does not allow it, the company needs to amend the AoA first by passing a special resolution at a general meeting.
Board Approval: The Board of Directors should convene a meeting to propose the increase in authorized share capital. During the board meeting, the board will approve the proposal and schedule an Extraordinary General Meeting (EGM) to seek shareholders' approval for the authorized capital increase.
Notice for Extraordinary General Meeting (EGM): A notice for the EGM must be sent to all shareholders, directors, and auditors, specifying the meeting's agenda, date, time, and venue. This notice should be dispatched at least 21 days before the meeting.
Shareholders' Approval: At the EGM, shareholders must pass an ordinary resolution to approve the increase in authorized share capital.
ROC Filing Compliance: After shareholders' approval, the company must file the SH-7 form with the Registrar of Companies (RoC) within 30 days of passing the resolution to increase the authorized capital.

Step-by-Step Process to Increase Authorized Capital Online

Increasing the authorized share capital of a Company in India is a structured process governed by the Companies Act, 2013. You need to follow the following steps:

Step 1: Verify the Articles of Association (AoA)

Before initiating any changes, review the company's AoA to confirm it permits an increase in authorized share capital. If the AoA does not have a provision to increase the share capital, the AoA must be amended by passing a special resolution in a general meeting, as per Section 14 of the Companies Act, 2013.

Step 2: Convene a Board Meeting

Schedule a Board Meeting to propose the increase in authorized capital. During this meeting, the Board should:

Approve the proposal to increase the authorized share capital.
Decide on the date, time, and venue for an Extraordinary General Meeting (EGM) to seek shareholders' approval.
Authorize a director or company secretary to issue the EGM notice.

Step 3: Issue Notice for the Extraordinary General Meeting (EGM)

Send a notice to all shareholders, directors, and auditors at least 21 days before the EGM to give the agenda about the proposed increase in authorized share capital.

Step 4: Hold the Extraordinary General Meeting (EGM)

Conduct the EGM on the scheduled date to:

Increase the authorized share capital.
Obtain shareholders' approval by passing an ordinary resolution.
Approve the amendment to the Capital Clause of the MoA to reflect the new authorized capital.

Step 5: File Required Forms with the Registrar of Companies (RoC)

Within 30 days of passing the resolution, file the following forms with the RoC:

Form MGT-14: If the AoA is amended.
Form SH-7: Notice of alteration of share capital.

Attach the necessary documents with the form:

Certified copy of the ordinary resolution.
Altered MoA and AoA (if amended).
Minutes of the EGM.
Notice of the EGM

Step 6: Update Company Records

After receiving approval from the RoC, update all company records to reflect the increased authorized share capital. This includes:

Statutory registers, such as the Register of Members.
Share certificates are available if new shares are issued.
The company's financial statements and records.

MOA Registration Fees for Increasing the Authorized Capital of the Company

The ROC filing fees for SH-7 vary depending on the amount of increased capital and the type of company.

S. No.	Nominal Share Capital (₹)	Fixed fee	Fee for every 10,000 or part thereof	Fixed fee for OPC and Small Companies	Fee for every 10,000 or OPCs and Companies
1.	Up to 1,00,000	5000	Not Applicable	2,000	Not Applicable
2.	More than 1,00,000 up to 5,00,000	5000+	400	2,000	Not Applicable
3.	More than 5,00,000 up to 10,00,000	21,000+	300	2,000	Not Applicable
4.	More than 10,00,000 up to 50,00,000	36,000+	300	2,000	200
5.	More than 50,00,000 up to 1,00,00,000	1,56,000+	100	2,000	100
6.	More than 1,00,00,000	2,06,000+	75	2,000	75

Note: The ROC fee is subject to the stamp duty.

Post-Approval Compliance Checklist

Update the Memorandum of Association (MoA) of the Company
Amend the Articles of Association (AoA) (if required)
File Form SH-7 on the MCA portal
Pay Stamp Duty on the increased amount of authorized capital as per the respective state laws.
Update Register of Members and other Statutory Registers of the company
Maintain accurate records

Penalties for Non-Compliance in Increasing Authorized Share Capital

Non-Compliance	Legal Provision	Penalty Details
Delayed Filing of Form SH-7 must be filed within 30 days of passing the resolution.	Section 64(2) of the Companies Act, 2013	Company: ₹1,000 per day of delay, up to ₹25,00,000 Officer in default: ₹1,000 per day of delay, up to ₹5,00,000
Issuing Shares Beyond Authorized Capital	Section 62(1) of the Companies Act, 2013	Such issuance of shares is invalid and may be declared void. The company and officers may be liable for penalties under Section 450 of the Companies Act, 2013, of ₹10,000, plus ₹1,000 per day of continuing default.
Failure to amend the MoA and AoA results in an increase in authorized capital	Sections 13 & 14 of the Companies Act, 2013	The company and officers may face penalties under Section 450 of the Companies Act, 2013, of ₹10,000, plus ₹1,000 per day of continuing default.
Non-Payment of Applicable Stamp Duty	Indian Stamp Act, 1899	Penalty of up to 10 times the unpaid duty. The penalty ultimately depends on state regulations.

Why Choose Kanakkupillai for Increasing Authorized Share Capital?

Increasing the authorized capital of your company is a crucial step in growing your business. At Kanakkupillai, we specialize in guiding companies through the entire process. We provide:

Expert Guidance from Qualified Professionals: Our team of experienced Company Secretaries and legal experts will manage every step of the process to ensure that the increase in authorized capital is carried out efficiently and in compliance with the Companies Act, 2013, and other applicable laws.
End-to-End Support for Seamless Process: We handle all documentation and regulatory requirements on your behalf, from preparing the necessary documents to filing the required forms with the Registrar of Companies (RoC).
Tailored Solutions for Your Business Needs: We understand that each business is unique and has different needs. That’s why our approach is customized to suit your company’s specific needs.
Transparency and Integrity: At Kanakkupillai, we believe in transparency throughout the process. Our team will keep you updated at every step.
Ongoing Support After Approval: Once your authorized capital increase is approved, our support doesn’t end there. We help you update your company records and issue new share certificates.

Frequently Asked Questions

Is it mandatory to increase authorized capital before issuing new shares? +

Yes, a company cannot issue shares beyond its authorized capital. If the company plans to issue shares that exceed the current authorized capital, it must first increase the authorized capital accordingly.

Is it mandatory to amend the Articles of Association (AoA) before increasing authorized capital? +

Yes, if the AoA does not contain a provision permitting an increase in authorized capital, it must be amended by passing a special resolution in a general meeting before proceeding with the increase.

Are there any government fees associated with increasing authorized capital? +

Yes, the Registrar of Companies (RoC) charges fees based on the amount of authorized capital. The fee structure is tiered and varies with the capital amount. Additionally, stamp duty is also applicable as per the respective state laws.

Can a company issue shares immediately after increasing authorized capital? +

Yes, once the RoC approves the increase and the company's records are updated, the company can proceed to issue new shares, provided all other regulatory requirements are met.

Is shareholder approval always required to increase authorized capital? +

Yes, shareholder approval is mandatory. To authorize the increase in share capital, an ordinary resolution must be passed in a general meeting.

Can authorized capital be decreased after being increased? +

Yes, a company can decrease its authorized capital by altering its MoA, subject to compliance with the provisions of the Companies Act, 2013, and after obtaining necessary approvals from the MCA.