In most of the cases when a new company is registered, they have the authorised capital as one or ten lacs. With increasing business, company may need more capital to infuse through existing shareholders, or through investor in most of the cases. It is important to note that paid up capital can not surpass the authorised capital figure. For this reason, it becomes essential to increase the authorised capital of the company.
A business without a funding source will flounder under the weight of its own debt. Funding is the fuel on which a business run. The nature of the funding can be debt or equity funding. Whenever a company chooses to go the equity route to raise the funding, it is then supposed to first check the value of share capital of the company. Almost in all the cases of the share subscription cases, fresh issues are issued to the new investor of the company and in all such cases where the ceiling of the authorized capital has already been reached, the company has to first undertake an increase in its authorised share capital.
Top reasons to Increase the Authorised Share Capital
"Authorised share capital" is the widest term used to describe a company's capital which is the total value of shares a company can issue to the shareholders. It comprises every single share of every category that the company could issue if it needed/ wanted to from time to time as per the requirements. The authorised capital of the company is the maximum capital, that a company can raise at any point in time. Basically, authorised capital is decided by the shareholders. This limit is outlined in its constitutional documents called Memorandum of Association (MOA) and can only be changed with the approval of the shareholders. At the time of Incorporation, the amount of Authorised Capital is decided by the Shareholders (Subscribers to the Memorandum of Association) of the Company and it is mentioned in the Capital Clause of the Memorandum of Association (MOA) of the Company.
"V. The authorised share capital of the company is Rs. _________ (in words_____only) divided into ___ (in words____ equity shares of Rs. ___ (Rupees Ten only) each."
Every business either big or small in size requires funds to run the business and to meet their business operations. Now if a Company desires to increase the Authorised Capital, they can do so only via passing an Ordinary Resolution subject to shareholders approval in EGM of the Company. Once company has altered its share capital independently then a return shall be filed with the registrar within 30 days of such alteration or increase in MCA eForm SH-7.
Alteration of MOA due to increase in Authorised Share Capital the following forms are required to be filed with the MCA:
Process of increase in authorised share capital is governed by section 61 read with section 13 and 14 of Companies act 2013. Section 61 has a precondition that to increase authorised share capital, authorisation in article of association is a must. As per the section the company may alter its memorandum in its general meeting to—increase its authorised share capital by such amount as it thinks expedient.
Notice of alteration of Share Capital shall be filed by Company to the Registrar in Form no. SH.7 along with fees depending on the capital requirements and pay the stamp duty according to the State Stamp Act.
As per Section 2(8) of the Companies Act, 2013, ‘authorised capital’ or ‘nominal capital’ means such capital as is authorised by the memorandum of a company to be the maximum amount of share capital of the company.
Therefore, it is cleared via above mentioned definition that company can expand its business up to the level of authorised capital. If you want to expand your business by infusion of more funds then first you have to increase your authorised capital by following the few steps as mentioned below in the procedure to increase authorised capital.
Let us understand more in the form of Question and Answers
Q. 1. What do we mean by Authorised share capital or Nominal Share Capital?
Authorised share capital means that maximum amount of money which company can raise through share capital. It is also known as nominal capital.
Q. Whether stamp duty to be paid on increase in authorise share capital?
Yes, stamp duty is to be paid on increase in authorised share capital as per State Stamp Act.
Q. How much Time Roc takes for the Approval of SH-7?
Different ROC can take different time. However, generally it takes one to two weeks’ time as SH-7 is an approval-based form and not STP one.
Q. What documents are required to be attached to Form No. SH.7?
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