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.
Kritika Gupta And Associates makes it easy to increase your company's authorised capital. Our experts guide you through every step, ensuring a hassle-free experience.
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.
The company can expand its business to the level of the authorised capital. If the company has to expand the business, infusing more funds than at first, the company has to increase the authorised capital.
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. Therefore, if a company's paid-up capital reaches the limit of its authorised capital and it aims to welcome new shareholders, it has two options
Either increase its authorised share capital and then issue new shares or
Facilitate the transfer of shares from current shareholders to new ones.
Authorised 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)
By increasing the authorised share capital, a company expands its capacity to issue additional shares, enabling it to raise funds from existing or new shareholders. This process is often undertaken to support business expansion, finance new projects, or meet evolving financial needs.
During the formation of a Private Limited Company, the initial authorised and paid-up capital levels are established in the company's Memorandum of Association (MOA). This sets the maximum amount of share capital that the company is allowed to issue to its shareholders. Should the company aim to exceed this predetermined cap by issuing additional shares, it necessitates an amendment to the MOA to raise the authorised capital threshold, thereby accommodating the issuance of new shares beyond the original limit.
As mentioned above, a company might consider increasing its authorised capital for several reasons, including:
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. Ensure the following documents are prepared for filing:
The process involves several essential steps to ensure compliance with regulatory requirements and secure shareholder approval for the proposed increase.
The AoA outlines the company's governance, including capital management. Initially, verify if the AoA permits changes to the authorised capital.
The process is straightforward if the AoA includes a provision for altering authorized capital. Otherwise, the AoA needs amending.
In the absence of a provision, amend the AoA as per Section 14 of the Companies Act, 2013, to include the capability for authorized capital alteration.
Once the AoA allows it, the company can officially change its authorized capital.
Dispatch a notice detailing the meeting's agenda to all directors at least 7 days in advance to their registered addresses..
During the board meeting, a resolution will be passed to convene an extraordinary general meeting (EGM). This involves issuing a notice in line with Section 101 of the Companies Act to present and seek approval for the revised authorized capital clause in the Memorandum of Association via an Ordinary Resolution, as per the guidelines of Section 60 of the Act.
Inform shareholders about the EGM specifics, including the agenda, date, time, and venue. The notice should also outline the voting method for resolution approval.
The notice for the EGM should be issued at least 21 days before the scheduled date. However, a shorter notice period is permissible if at least 95% of voting-eligible members consent, which can be obtained either in writing or via electronic means.
The agenda item for increasing the authorized share capital is formally presented to the attendees.
The voting occurs as outlined in the EGM notice, allowing shareholders to vote on the proposed increase.
The resolution to increase the authorized capital is officially passed upon securing the necessary approval through voting.
An explanatory statement detailing the resolution and its implications is prepared and appended to the official records, marking the authorization of the capital increase.
Complete the e-stamp duty payment for the augmented Authorized Share Capital amount via the Ministry of Corporate Affairs (MCA) Portal, as law requires.
After the authorised share capital increase, certain steps need to be followed to ensure regulatory compliance and effective implementation of the decision.
Ensure that all copies of these documents reflect any changes made to the Memorandum of Association (MOA) and Articles of Association (AOA). This is to maintain consistency and legal compliance across all official company records.
With the authorised share capital now increased, the company can increase its paid-up share capital. This is typically achieved by issuing new equity shares to existing or new shareholders, thereby infusing additional funds into the company.
While the Companies Act 2013, specifically in Sections 61 and 65, outlines the provisions for increasing authorised capital, it doesn't directly specify penalties within these sections. However, Section 450 of the Act addresses penalties for general non-compliance.
When a company or its officers fail to adhere to the prescribed rules, a penalty of Rs. 10,000 is imposed.
An additional daily penalty of Rs. 1,000 is levied for ongoing violations until the issue is resolved.
Specifically concerning the late submission of Form SH-7, which is required within 30 days of the resolution to increase authorised capital, the penalty accrues at Rs. 1,000 per day of delay.
This penalty continues until the default is corrected, subject to a maximum cap of Rs. 25 lakh, whichever amount is lower.
ritika Gupta And Associates is your ideal partner for increasing your company's authorised capital, offering a comprehensive suite of services tailored to your needs. Here's why:
We specialize in navigating the complexities of amending your Memorandum of Association (MOA), ensuring that your documentation accurately reflects your new capital structure.
Our team efficiently handles the filing of Form MGT-14, which is required for registering changes in your company's capital with the Registrar of Companies.
We take care of filing Form SH-7, which is essential for officially recording the increase in your authorized capital.
From the initial assessment to the final submission, KRITIKA GUPTA AND ASSOCIATES s provides unwavering support, ensuring a smooth and compliant capital increase process.
Choosing Kritika Gupta And Associates means opting for a stress-free experience backed by expertise and a commitment to your business's growth.