How to Increase Authorized Capital of Company?

Authorised capital for a company can be appropriately increased through the passing of board resolution and filing Form SH-7 with Registrar of companies(ROC). Through authorised share capital the company can issue shares to its subscribers.

What is Authorised capital?

The authorised share capital of the company is the maximum number of securities which a company can issue as per its constitutional documents. The value of the authorised share capital is to be mandatorily to be mentioned in the MOA. Any company cannot issue a share of value exceeding that of authorised capital.

The Authorised Capital of the company is broadly divided into:

  • Issued Capital

Issued capital is the value of the shares that have been issued.

  • Paid Up capital

Paid up capital of the company is the amount that is received by the company from the shareholders after distribution of the shares.

  • Uncalled capital

The amount that is not yet received by the company against shares that were issued to the shareholders or bought by them.

Process to Increase Authorised Share Capital

To increase the authorised capital of the company, permission from the shareholder of the company is required, which can only be obtained after holding an Extraordinary General Meeting (EGM). The share capital of the company is increased by issuing new shares or by transferring the company's own funds to unrestricted equity.

Step-1 Approval for Article of Association (AOA)

The Article of Association(AOA) of a company should have the provision for increasing the authorised share of the company, and if no such provision is present in the AOA, then it needs to be amended in accordance with the company law.

Note: Article of Association can be amended through the passing of the special resolution.

 

Step-2 Notification for Extraordinary General Meeting

A board meeting is to be set up by the company to decide upon the date, time and place of Extraordinary general meeting. The notification for the same is to be sent to the shareholders, directors and creditors of the company.

The board meeting should also have agenda of the EGM mentioned in the notice along with the purpose of EGM should be discussed in the board meeting that is held.

Remember: The notice sent to the directors must include the method of voting that would be adopted while passing the resolution for increasing the authorised capital.

Step -3 Extraordinary General Meeting

The EGM should be held at the time and place mentioned in the notification, and the increase in the authorised capital should be passed with ordinary resolution.

Pro Tip: The voting to pass the resolution is done in the manner mentioned in the notice filed.

Step -4 Filing form SH-7

Once the EGM is held the company secretary appointed has to file Form SH-7 with ROC within the prescribed limit of 30 days. The Company needs to submit the altered MOA and AOA  along with all the prescribed documents.

The Roc will then check the forms and all the prescribed documents submitted along with the prescribed documents, and if as per them all the necessary documents are submitted they will approve and amend the increase in the authorised capital.

Step-5 Allotment of shares

Once the Authorised capital of the company is increased, the company board can make an increase in the paid-up share capital of the company as well by issuing new equity shares.

Documents to be Attached with Form SH-7

There is a requirement for the following documents:

  • Board Resolution for an increase in the share capital
  • Board Resolution mentioning the alteration of the capital clause in the MOA
  • The resolution passed by the shareholder in the EGM
  • AOA of the company
  • Proposed capital that the company wants to adopt.

Cost for Increasing Authorised Share Capital

Ministry of Corporate affairs charges a government fee for changing the authorised capital of the company. This generally happens when the companies get themselves registered with low authorised capital and hence the requirement for increase arises.

To increase the authorised capital following fee has to be paid to the MCA:

Companies other than one person Company:

Share Capital Limit

Fees paid (Per lakh)

Increase with every 10,000

Upto 1 lakh

5,000

NIL

I lakh to  5 lakh

5,000

400

5 lakh to 10 lakh

21,000

300

10 lakh to 50 lakh

36,000

300

50 lakh to crore

1,56,000

100

More than 1 crore

2,06,000

75

 

For Small and One Person Company

Share Capital Limit

Fees Paid (Per lakh)

Increase with every 10,000

Upto 1 lakh

2,000

NIL

I lakh to  5 lakh

2,000

NIL

5 lakh to 10 lakh

2,000

NIL

10 lakh to 50 lakh

2000

200

50 lakh to 1 crore

1,56,000

100

More than 1 crore

2,06,000

75

Reasons why a Company would Increase its Authorised Capital

When a company is incorporated the owner of the company has to settle on the capital share of the company that is mentioned in the AOA and MOA submitted with the ROC. Hence if in future you think that it is important to increase the Authorised capital of the company it can be done easily after amending the AOA and MOA of the company.

  1. Banks prefer to give loans to company depending upon the authorised capital of the company.
  2. The company can issue funds based on the issue of equity capital
  3. Usually when the company expands the authorised capital of the company is increased so that external investments can be allocated.

Related Articles