Company Authorised Capital Increase – A Comprehensive Guide by Vijendra & Co
Understanding a Company Authorised Capital Increase is essential for any growing business aiming to raise funds or accommodate new shareholders. At Vijendra & Co, we specialize in helping businesses manage legal and regulatory aspects of corporate compliance, particularly in matters concerning capital restructuring. On this page, we delve into everything you need to know about a Company Authorised Capital Increase, including the definitions, procedures, legal requirements, and more.
What is Authorized Capital?
Authorized Capital—also known as Nominal Capital—is the maximum amount of share capital that a company is legally permitted to issue to its shareholders as per its constitutional documents. This limit is defined in the company's Memorandum of Association (MOA) and can only be changed through a structured legal process.
While the authorized capital sets a ceiling, it does not imply that the company must issue the entire capital at once. It merely acts as a cap on the value of shares that can be legally issued. A Company Authorised Capital Increase is required when a company needs to raise this ceiling to issue additional shares.
Authorised and Paid-Up Capital of a Company
In corporate finance, two fundamental terms often arise—Authorised Capital and Paid-Up Capital:
- Authorised Capital is the maximum share capital a company is allowed to issue.
- Paid-Up Capital refers to the amount of money shareholders have actually paid in exchange for shares.
A company cannot have a paid-up capital higher than its authorised capital. Therefore, whenever a company seeks to raise funds beyond its existing authorised limit, it must undergo a Company Authorised Capital Increase.
Authorised Share Capital Increase
An Authorised Share Capital Increase is the legal process by which a company amends its MOA to raise the limit of its authorised capital. This process requires board and shareholder approvals and must be carried out in accordance with the Companies Act, 2013.
This increase is often a prerequisite for issuing new equity shares, whether through a private placement, rights issue, or for allotting shares to new investors. It is a crucial step in scaling operations or restructuring the company’s equity.
Amending the MOA for Increasing Authorized Capital
To implement a Company Authorised Capital Increase, the Memorandum of Association (MOA) of the company must be amended. Specifically, the clause dealing with capital structure must be revised to reflect the new authorised capital.
This amendment requires:
- A board resolution approving the proposed increase.
- A special resolution passed at a general meeting of shareholders.
- Filing of necessary forms with the Registrar of Companies (RoC).
The new capital structure only takes effect once the RoC approves the filing.
Reasons for Increasing Authorized Share Capital
There are several business scenarios where a Company Authorised Capital Increase becomes essential:
- Raising Funds: To accommodate new equity investments or loans convertible into shares.
- Expansion Plans: For funding new projects, acquisitions, or product development.
- Compliance Needs: To meet statutory requirements such as minimum capital thresholds.
- Conversion of Debt to Equity: For restructuring liabilities.
- Stock Option Plans: Issuing shares to employees under ESOP or other incentive plans.
Each of these scenarios demands a legally compliant increase in authorised capital to facilitate corporate growth.
Documents Required for Authorized Share Capital Increase
When planning a Company Authorised Capital Increase, the following documents are typically needed:
- Board Resolution for increase in authorised capital.
- Notice of Extra-Ordinary General Meeting (EGM).
- Shareholders’ Special Resolution.
- Altered copy of the MOA and AOA.
- Form MGT-14 for filing special resolution.
- Form SH-7 for notice to the RoC.
- E-Stamp duty receipt as applicable.
These documents ensure that the increase is legally validated and recorded by the Ministry of Corporate Affairs (MCA).
Procedure to Increase Authorized Share Capital
Here’s a step-by-step breakdown of the Company Authorised Capital Increase procedure:
- Board Meeting: Pass a board resolution to approve the increase and fix the date for the EGM.
- Issue Notice of EGM: Send notices to all shareholders along with explanatory statements.
- Convene EGM: Pass a special resolution approving the increase and the alteration of the MOA.
- File MGT-14: Submit the special resolution to the RoC within 30 days of passing it.
- File SH-7: Submit the notice of increase in authorised capital to the RoC.
- Pay Stamp Duty: Make the required payment of e-stamp duty on the increased amount.
- Approval from RoC: The Registrar reviews the application and updates the capital in the company’s master data.
Convening a Board Meeting for Authorized Capital Increase
The process begins with convening a Board Meeting to:
- Review the necessity of a capital increase.
- Approve the draft notice for EGM.
- Finalize the revised MOA reflecting the proposed capital.
- Decide on the date and time for the EGM.
Proper minutes of the meeting must be maintained to document the decision and form the basis for further proceedings.
Documents Required
To complete the Company Authorised Capital Increase, the company must prepare and file:
- Certified copy of Board and Shareholder resolutions.
- Revised MOA with updated capital clause.
- Completed and signed Forms MGT-14 and SH-7.
- Receipt of payment for e-stamp duty.
- Auditor certificate (if applicable).
- Digital Signature Certificates (DSC) of authorized signatories.
Payment of E-Stamp Duty
The increase in authorised capital attracts e-stamp duty, the rate of which varies from state to state. It must be paid before submitting Form SH-7. Failure to do so will lead to rejection of the filing or delays in processing.
Timely and correct payment of stamp duty is critical to ensure the smooth execution of the capital increase.
Penalties for Non-Compliance with Authorized Capital Increase Procedures
Non-compliance with the legal provisions for a Company Authorised Capital Increase can lead to serious consequences:
- Rejection of forms by the RoC.
- Imposition of financial penalties.
- Disqualification of directors.
- Legal proceedings under the Companies Act, 2013.
To avoid these penalties, it is crucial to follow each procedural step meticulously and maintain accurate documentation.
Why Choose CS Vijendra & Co for Authorized Capital Increase
At Vijendra & Co, we bring expertise and precision to every aspect of corporate compliance, including Company Authorised Capital Increase. With years of experience in handling capital restructuring for startups, private limited companies, and established firms, we ensure:
- Timely and accurate preparation of legal documents.
- End-to-end compliance with MCA guidelines.
- Transparent guidance at every step of the process.
- Thorough knowledge of state-specific stamp duty requirements.
- Minimization of regulatory risks and delays.
Choosing CS Vijendra & Co means choosing a partner committed to your company’s lawful growth and financial expansion.
Summary
If you’re planning a Company Authorised Capital Increase, understanding the legal intricacies is crucial. From amending your MOA to filing with the RoC, each step requires legal expertise and compliance precision. With Vijendra & Co by your side, you can rest assured that your capital restructuring is handled efficiently and in full accordance with the law.
