Authorized Capital Increase
Increasing authorized capital is a legal process for companies to raise their maximum shareholding capacity. This requires a board resolution and MCA filing through Form SH-7 and Form MGT-14, with government fees calculated on a slab basis.
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Company Authorized Capital Increase
To raise additional long-term funds and expand business operations, a company may need to increase its authorized share capital. This is the maximum amount of share capital a company is legally permitted to issue to its shareholders, as defined in its Memorandum of Association (MOA). Since a company’s paid-up capital cannot exceed its authorized capital, this process is essential before issuing new shares.
FileMyFirm provides expert guidance to help you through the process of increasing your company’s authorized capital.
Procedure to Increase Authorized Capital
The increase authorized capital process is governed by the Companies Act, 2013 and involves a series of formal steps:
1. Board Meeting
The company’s Board of Directors must first convene a meeting to pass a resolution approving the proposed increase. This resolution also authorizes the calling of an Extraordinary General Meeting (EGM) to obtain shareholder approval.
2. Extraordinary General Meeting (EGM)
A formal EGM must be held, with a minimum notice period of 21 days (unless a shorter notice is agreed upon by 95% of members). At this meeting, shareholders pass an Ordinary Resolution to approve the MOA amendment for the capital increase.
3. Required Filings with ROC
Within 30 days of the EGM, the company must file the following e-forms with the Registrar of Companies (ROC):
- Form MGT-14: A certified copy of the resolution is filed to register the decision with the ROC. (Note: For a private limited company, this filing is not required for an increase in authorized capital, but it’s a good practice to file it).
- Form SH-7: This is the primary form for notifying the ROC of the authorized capital increase. It must be filed along with a copy of the amended MOA and the EGM resolution.
- Stamp Duty: The company must also pay the applicable stamp duty on the increased authorized capital through the MCA portal.
Documents Required for Filing
To complete the authorized capital increase, you will need:
- The amended Memorandum of Association (MOA) reflecting the new capital.
- A certified copy of the EGM resolution.
- The notice of the EGM with the explanatory statement.
- An updated Articles of Association (AOA) if it’s also being amended.
Penalties for Non-Compliance
Failure to file Form SH-7 within the 30-day deadline can result in penalties. The Companies Act imposes a general penalty of ₹10,000, with an additional ₹1,000 per day for continued violations.
Simplify Your Capital Increase with FileMyFirm
The process of increasing a company’s authorized capital involves multiple legal and procedural steps. FileMyFirm offers a streamlined solution, handling all aspects from drafting resolutions to filing forms like Form SH-7 with the ROC, ensuring your capital increase is smooth, compliant, and hassle-free.
Frequestly asked questions ( FAQ )
Authorized Capital (also known as nominal capital) is the maximum value of shares that a company is legally permitted to issue to its shareholders. A company must increase its Authorized Capital when it intends to issue new shares (e.g., to raise funds, bring in new investors, or offer stock to employees) and the current authorized limit has been reached or is about to be exceeded.
The increase in Authorized Capital requires an amendment to the Capital Clause of the Memorandum of Association (MOA), as the MOA defines the company’s maximum shareholding capacity.
A company must pass an Ordinary Resolution at an Extraordinary General Meeting (EGM) of the shareholders to approve the increase in Authorized Capital.
An Ordinary Resolution requires a simple majority (more than 50%) of the members present and voting.
The primary MCA e-form required to notify the ROC of the capital increase is Form SH-7. This form must be filed along with:
A copy of the Ordinary Resolution passed at the EGM.
The amended MOA.
Form MGT-14 (used for filing special resolutions) may also be filed to register the resolution, though it is often noted as optional but good practice for private limited companies increasing capital.
The company must file Form SH-7 with the ROC within 30 days from the date of passing the Ordinary Resolution at the EGM.
The company is required to pay:
Government fees to the Ministry of Corporate Affairs (MCA), which are calculated on a slab basis (i.e., the fee amount increases based on the amount of capital being added).
Applicable Stamp Duty on the newly authorized share capital, which is paid through the MCA portal.