Overview

Businesses in India in order to grow and expand need short term and long-term funds. For the Companies especially a Private Limited, the same is done by increasing the authorised share capital of the Company. Section 2(8) of the Companies Act, 2013 states the term.

Authorised share capital refers to the maximum number of shares that a Company is legally allowed to issue, as specified in its articles of association or memorandum of association. This amount is determined by the Company's board of directors and is subject to approval by the shareholders.

The Companies Act, 2013 specifies the minimum and maximum limit for authorised share capital for different types of Companies but this requirement of minimum paid-up share capital is also done away by The Companies (Amendment) Act, 2015 for the easy of doing business in India which is such a great move by Indian Government to support the Startups. With the growth of the business Entrepreneur also required funds from time to time, to mitigate the expenses and for the fulfillment of working capital where firstly, before issue of any further share capital, Company needed to raise the limit of Authorised Share Capital subject to the amendment in the Capital Clause of Memorandum of Association. Alteration in capital clause (Authrosied share capital) is much easier than change in other clauses alteration of MoA.


Key features of authorised share capital include:

Procedure to increase the authorised share capital

1. Verify the Articles of Association – 

The articles must contain a provision where the Articles of the Company state that the authorised share capital can be increased/altered. In case, the articles hold no such provision then the article of Association (AOA) of the Company shall be amended first subject to shareholders Approval via Special Resolution.

2. Conduct a Board meeting (BM) –

The agenda for the meeting of Directors must be sent 7 days prior to all the Board of Directors of the Company for seeking the approval to increase the authorised share capital of the Company through passing a board resolution.

The Board resolution shall also be passed to call and fix a date to conduct a meeting of the shareholders (EGM), and the notice must be sent for the EGM to be held at least 21 days (+2 days as the day of sending notices & the day of Meeting shall not be counted for calculating clear days) before the date of EGM to all the directors, auditors, shareholders of the Company, seeking approval from the shareholders.

3. Convene an Extraordinary General meeting (EGM) – 

The approval of the shareholders is obtained in the EGM held as decided in the meeting of Directors to increase the authorised share capital by passing of an ordinary resolution by the shareholders of the Company.

4. Filing of Form MGT-14 (if applicable*) –

The e-form shall be filed within 30 days of passing the ordinary resolution or SR in case of any alteration of AOA on MCA Portal with necessary attachments:

*The MCA vide its Notification No. GSR 464(E) dated June 5, 2015, brought relief and exemption for private limited Companies from filing MGT-14 for the board resolutions per Section 179 of the Companies Act, 2013.

5. Filing of Form SH-7 – 

Filing of the e-form SH-7 with the Registrar of Companies (ROC) within 30 days of passing the ordinary resolution at the EGM. The SRN of MGT-14 is used in the e-form SH-7.

The form SH-7 shall be filed along with necessary attachments:

6. Payment of stamp duty – 

The Company is required to pay the stamp duty on the increase of its authorised share capital, it is required to pay stamp duty on the increase in authorised share capital. The stamp duty on the increase in authorised share capital is typically calculated as a percentage of the increase in authorised share capital. The percentage varies depending on the state where the Company is incorporated, but it is usually between 0.5% to 2%.

It is important to note that there are some exemptions available for the payment of stamp duty on the increase in authorised share capital, such as for Small and Micro Enterprises (SMEs) and for Start-ups. These exemptions are subject to the conditions specified by the state government.

It is always advisable to consult a professional or legal advisor for the accurate calculation of stamp duty and the process of filing the necessary documents with the Registrar of Companies to increase authorised share capital.

Summary

Thus, one can summarise, in order to increase the authorised share capital of a Company, the articles of association must authorise to do the same, the memorandum of article shall be altered and after passing of the resolution of shareholders, the Company must file the e-form SH-7 with the Registrar of Companies (ROC) in the state where the Company is registered.

The e-form SH-7 must be accompanied by the necessary documents, including a resolution approving the increase in authorised share capital and the revised memorandum of association reflecting the increase. The ROC will review the documents and, if everything is in order, approve the increase in authorised share capital and issue a new certificate of incorporation reflecting the increase.