How Does a Company Increase Authorized Capital?

Authorized capital is the maximum amount of issued capital by the company to the subscribers. It is mentioned under the capital clause of the memorandum of association (MOA). It is also called nominal capital which can be increased as per the company’s requirement as it cannot issue shares more than its authorized capital. The benefits of the increase are growth in business, additional funds for shareholders, enhanced borrowing capacity, expanding share capital, etc.

Process of Increase in Authorized Capital

The following are the steps involved in the process for an increase in authorized capital as per the Companies act, 2013:

Step 1: Checking the Article of Association (AOA) of the Company

A company shall check the provisions in the articles if it provides permission for changing the articles or not. In case, the provision is not given in the AOA then it needs to be changed by the company.

Step 2: Holding the meeting of the Board of Directors for increase authorized capital

• A notice must be sent prior to seven days to all the directors with the agenda of the board meeting.
• A board resolution is passed in the board meeting for conducting an extraordinary general meeting of members. An ordinary resolution for alteration in articles is passed in EGM.
• The board resolution for increase in authorised share capital of the company is passed when the majority of the director gives consent to the agenda.
• A notice for increase in authorised share capital including the date, day, time, and place of the meeting with the agenda.
• The notice is sent to every director, member, auditor, debenture trustee and other stakeholder of the company.
• An EGM notice is to be sent 21 days from the date of convening the meeting. In case of a shorter notice is sent when ninety-five percent of the members have given assent in writing or electronic mode and who are eligible to vote in the meeting.
• The minutes of the board meeting are to be prepared within fifteen days from the date of conducting the board meeting.

Step 3: Holding and Convening the Extraordinary General Meeting (EGM)

In the EGM, an ordinary resolution is passed for increasing the capital. The approval of members is received for the resolution passed with the explanatory statement.

Step 4: Form Filed with the Registrar of Companies (ROC)

A company is required to file Form SH-7 and Form MGT-14 for resolution with the ROC.

1. Form SH-7 is required to be filed for increase authorized capital within thirty days of passing the resolution. The details of Form SH-7 are as follows:

• Basic details of the company like CIN, Name, Address and E-mail ID.
• Type of Resolution whether ordinary or special.
• Date of Holding General Meeting
• MGT-14 SRN
• The original authorized capital amount and the New authorized capital amount.
• Bifurcation of additional capital
• Stamp Duty Paid
• DSC requirement.

The Documents required for filing SH-7 are:

• A certified copy of the ordinary resolution for change in capital

• Consent in the Shorter notice, if required
• Copy of altered MOA
• Copy of altered AOA
• Optional attachment (if any)

1. The form is MGT-14 required for increase in authorised capital to be filed within thirty days of passing the resolution. The details of Form MGT-14 are as follows:

• Basic details of the company like CIN, Name, Address and E-mail ID.
• Purpose of filing the form
• Dispatch’s notice date
• Resolution passing date of increase authorized capital
• DSC required.

The Documents required for filing MGT-14 are:

• EGM Notice with explanatory statement
• A certified copy of the resolution
• Copy of altered MOA
• Copy of altered AOA

Step 5: Payment of stamp duty on increase in authorised share capital

The rate of stamp duty varies as per the state where the office is situated. The MCA portal has provided an e-stamp duty rate.

Step 6: Intimation sent to the Stock Exchanges for Listed Companies

A listed company shall send a copy of the altered MOA to the stock exchange within twenty-four hours of sending a notice to ROC. The company must post on the website in two working days.

Checklist for Increase in Authorized Share Capital

1. Changes in the Articles of Association (AOA) of the Company

2. Conduct a Board Meeting

3. Holding Extra Ordinary General Meeting

4. Filing Forms Form MGT-14 and Form SH-7 with Registrar of Companies

5. Payment of Stamp Duty

Conclusion

A Memorandum of association is submitted at the time of Incorporation of the company including the authorized capital to the Registrar.

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