Company Authorized Capital Increase

As a business grows, it often requires additional funds for expansion, operations, or long-term projects. While short-term financing can be met through loans or advances, private limited companies may need to increase their authorized capital to raise funds from shareholders in the long run.

At Taxation Point India, we guide companies through the process of increasing authorized capital, ensuring a smooth and compliant experience in accordance with the Companies Act, 2013.

What is Authorized Capital?

As per Section 2(8) of the Companies Act, 2013, authorized capital is the maximum amount of share capital that a company is legally permitted to issue as stated in its Memorandum of Association (MOA). If a company aims to expand its operations or bring in new shareholders, increasing the authorized capital is required.

Authorized vs. Paid-Up Capital

• Authorized Capital: Maximum potential value of shares a company can issue.
• Paid-Up Capital: Actual value of shares issued, subscribed, and paid for by shareholders.

Paid-up capital cannot exceed authorized capital. If it reaches the limit, the company must either increase the authorized capital to issue new shares or facilitate share transfers from existing shareholders.

Reasons to Increase Authorized Share Capital

• Addressing significant financial needs
• Funding new business initiatives or projects
• Facilitating mergers, acquisitions, or corporate restructuring
• Issuing additional shares to investors
• Converting debt into equity
• Meeting regulatory or statutory requirements

Procedure for Increasing Authorized Capital

The process involves several key steps to ensure compliance and shareholder approval:

• Step 1: Review the Articles of Association (AoA) – Verify if the AoA allows changes to authorized capital. If not, amend the AoA as per Section 14 of the Companies Act, 2013.
• Step 2: Board Meeting – Send at least 7 days’ notice to directors, pass a board resolution to convene an Extraordinary General Meeting (EGM), and approve the draft notice and explanatory statement for shareholders.
• Step 3: Extraordinary General Meeting (EGM) – Issue 21-day notice (or shorter with 95% consent), present the proposed increase, hold voting, and pass an Ordinary Resolution.
• Step 4: Regulatory Filings –
  • Form MGT-14: File within 30 days after the EGM to record the resolution.
  • Form SH-7: File within 30 days to notify the Registrar of Companies about the increase in authorized capital.
• Step 5: Update MOA and AoA – Reflect all changes in the company’s official records to ensure consistency and compliance.
• Step 6: Share Allotment – Post increase, the company may issue additional shares to raise funds from existing or new shareholders.

Documents Required

• Certified copy of the resolution approving capital increase
• Updated Memorandum of Association (MoA) with revised capital clause
• Updated Articles of Association (AoA), if applicable
• Notice and explanatory statement for the EGM

Penalties for Non-Compliance

• Penalty of Rs. 10,000 for failing to comply with procedures.
• Additional daily penalty of Rs. 1,000 until the default is rectified.
• Late submission of Form SH-7 incurs Rs. 1,000 per day of delay, subject to a maximum of Rs. 25 lakh.

Why Choose Taxation Point India?

• Expert guidance on MOA and AoA amendments
• Efficient handling of Form MGT-14 and Form SH-7 filings
• End-to-end support for authorized capital increase
• Compliance with Companies Act, 2013 and regulatory requirements
• Professional, reliable, and timely corporate services

Increase your company’s authorized capital seamlessly with Taxation Point India — professional support for drafting, filing, and regulatory compliance.