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Increase Authorised Share Capital
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Authorised Share Capital - Overview
The maximum number of shares that a private business may issue is defined by its authorised share capital. According to the 2013 New Companies Act, there is no minimum capital increase requirement. The capital clause of the Memorandum of Association is updated by the board approving an ordinary resolution in order to issue additional shares or increase the authorized share capital.
This sum of authorised share capital increase varies from business to business and could alter, but only with the consent of shareholders. Let’s say a firm has an authorised capital of ₹2 lakhs; in that case, it follows that it can issue shares for up to ₹2 lakhs. However, because it is flexible, this allowed capital may be increased or decreased as needed. Let’s imagine a firm has ₹1 lakh in allowed capital, but an investor wishes to put in ₹1 crore. In this case, the company can raise its authorised capital to ₹1 crore. The permitted share capital increase for company registration is covered here.
Guidelines for Increase in Authorised Share Capital
Here are the few guidelines one must know about authorised share capital:
- ₹5 lakhs for including the phrases Hindustan, Bharat, and India in the company name.
- ₹10 lakhs for the use of the phrases ‘Enterprise’, ‘Products’, ‘Business’, and ‘Manufacturing’ in the company name.
- ₹10 lakhs for the use of the phrases ‘Enterprise’, ‘Products’, ‘Business’, and ‘Manufacturing’ in the company name. ₹50 lakhs for the use of the phrases global, intercontinental, continental, Asian, and international in the company’s name.
- Bharat, Hindustan, and India were paid ₹50 lakhs to be the first word in the firm name.
- For employing words like ‘international’, ‘global’, ‘universal’, ‘continental’, ‘intercontinental’, ‘asiatic’, and ‘industry’ anywhere in the firm name, as well as ‘udhyog’ and ‘industry’, the fine is ₹1 crore.
- ₹ 5 Crore if the company name contains the word ‘Corporation’ even once.
Importance of Increasing Authorised Share Capital
A firm may only raise money from the public up to its authorised share capital. You must raise your company’s authorised share capital in order to raise money from the public.
Benefits of Increasing Authorised Capital
Increase Authorised Capital
A 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 Capacity
With 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 Increase in Authorised 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 Online: 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.
Checklist For Increasing Authorised Share 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.
Post Compliance Steps To Increase Authorised Share Capital
Below are the steps on procedure for increase in authorised share capital
Step 1: Board Resolution
Prior to deciding whether or not to increase the authorised share capital, the company must first hold a board meeting to review and discuss the authority provided under the company’s articles of association (AOA). If not, amend the AOA and hold a general meeting to discuss raising the authorised capital.
Step 2: Ordinary Resolution for an Increase in Authorised Capital
The Company will hold a general meeting of the members and adopt a regular resolution for an increase in the company’s authorised capital and any necessary amendments to the memorandum of association at said meeting.
Step 3: Submitting the Required Paperwork
Following the passage of the Ordinary Resolution increasing the business’s authorised capital, the company will file Forms MGT-14 for filing resolutions and Form
Step 4: The ROC approval
The Registrar of Companies will process the forms and approve the increase in authorised capital after receiving the Forms of Increase in Authorised Share Capital of the Company and verifying that it is pleased with the forms filed and compliance made. The company’s master data will be updated on the MCA portal as soon as the form has been approved.
Procedure of Increase the Authorised Share Capital of the Company
- Verify whether the company’s AOA has given the go-ahead to increase the authorised capital. If AOA is not permitted, a Special Resolution must be passed in order to change AOA
- Hold a board meeting to establish the day, date, time, and location of the extraordinary general meeting as well as to enhance the company’s authorised capital. Give notice of the meeting’s day, date, time, location, and agenda to each member/shareholder, director, and auditor of the company
- Convene, hold, and conduct the EGM at the time and location stated, and adopt a resolution to seek shareholder approval. If applicable, submit the required form within the timeframe
- Change the company’s Memorandum of Association to increase the permitted share capital
- If the shareholders’ resolution is approved, you have 30 days to file form SH-7 with the Registrar of Companies. Additionally, if the resolution is passed as a Special Resolution, form MGT-14 must be filed within 30 days after the resolution’s passage.
Reasons for Increase in Authorised Share Capital
What can be the reasons for increase in authorised share capital of the company? There could be various reasons for a company needing to increase the authorised capital. Let us see a few:
- The need for enormous funds
- Financing the company’s new projects
- Merger of two enterprises and their cash infusion as part of an arrangement strategy
- Additional share capital issuance
- Debt is converted to equity capital.
- To fulfil the legal requirements
What Are the Rules for Increase in Authorised Share Capital?
The rules for increasing authorised share capital of a company are as follows:
Check the Articles of Association (AOA): Before increasing authorised share capital, the company should review its AOA to ensure that the procedure and requirements for passing a special resolution are met
Conduct a Board Meeting: The board of directors of the company should convene a meeting to approve the proposal to increase authorised share capital
Pass a Special Resolution: The shareholders of the company should pass a special resolution approving the increase in authorised share capital. The resolution should be filed with the Registrar of Companies (ROC) within 30 days of its passing
Obtain Approval from ROC: The company should file the necessary documents with the ROC, including the special resolution and a copy of the altered AOA to obtain approval for the increase in authorised share capital
Issue New Shares: Once the increase in authorised share capital is approved, the company can issue new shares to raise additional funds.
Why Dreamunicus for Increase in Authorised Capital?
- We execute secretarial work for over 1000 companies and LLPs every month by leveraging our tech capabilities and the expertise of our team of legal professionals
- By handling all the paperwork, we ensure a seamless interactive process with the government
- We provide clarity on the incorporation process to set realistic expectations
- With a team of over 300 experienced business advisors and legal professionals, you are just a phone call away from the best in legal services
- Come on board and experience the ease and convenience.
Frequently Asked Questions (Faq)
A Pvt Ltd company can increase share capital by passing a resolution in the board of directors meeting and obtaining approval from shareholders.
The authorised capital for a private limited company can vary and is decided by the company during its incorporation.
Yes, a private company can alter its share capital by passing a resolution in the board of directors meeting and obtaining approval from shareholders.
Yes, as per the Companies Act, 2013, filing of MGT 14 is required for increase in authorised capital.
Yes, authorised shares can be increased by passing a resolution in the board of directors meeting and obtaining approval from shareholders.
To change the authorised capital of a company, the company needs to pass a resolution in the board of directors meeting and file the necessary documents with the Registrar of Companies (ROC)
The amount of authorised capital is decided by the company during its incorporation and can be changed later by passing a resolution in the board of directors meeting and obtaining approval from shareholders.
No, a company cannot raise funds beyond its authorised capital.
If a private company has more than 50 shareholders, it is required to convert to a public company.
The Companies Act, 2013 does not prescribe a minimum authorised capital for private companies.
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