One of the primary benefits of choosing a private limited company as a business structure is the ability to issue shares and raise funds. While incorporating a company, you need to determine the share capital of the company. This is that part of the company’s equity that you can sell to shareholders for cash or other considerations. However, the government does not allow companies to indiscriminately raise capital. Hence, the requirement of authorised capital was put in place. The authorised capital is the maximum value of share capital that the government allows companies to issue to shareholders. However, companies can increase authorised capital by following a specified process. Today, we will share the details of the process to increase Authorised Capital of a company.
The Process to Increase Authorised Capital of Company
Sections 61, 13, and 14 of the Companies Act, 1961 outline the details of the rules and regulations to increase authorised capital. Here are the steps for your perusal:
Verify the Articles of Association of the Company
A precondition to increase Authorised Capital of a company is an approval in the Articles of Association for the same. Hence, before you start considering it, check the Articles and verify if the provisions are present (Section 61). If they are present, then proceed to the next step. Else, you must amend the Articles to allow the increase. This is specified in Section 14 of the Companies Act, 1961. You will have to pass a Special Resolution to amend the Articles of Association (AoA).
Approval to Increase Authorised Capital at the Board Meeting
Once the provisions in the AoA are in place, you need to convene a meeting of the Board. To do this, you must submit a notice to the Director of the company. Once the Board Meeting is in progress, ensure that the Board of Directors approves the increase in authorised share capital. On receiving the approval, you must fix a venue, date, and time to call for an Extra-Ordinary General Meeting (EGM). The purpose of the EGM is to seek approval of the shareholders to increase authorised capital. Also, you will need to make required changes to the Memorandum of Association (MoA) for the same.
Ensure that the notice specifies the voting method for passing the resolution for the increase. It should also carry an explanation as specified in Section 102 of the Companies Act, 2013.
Ordinary Resolution at the EGM
At the EGM, the shareholders will discuss the matter of the increase in the Authorised Share Capital. Subsequently, they will vote in a manner specified in the notice. If the shareholders approve the increase, then pass an Ordinary Resolution as specified under Section 61 (1)(a) of the Companies Act, 2013.
File Forms with the Registrar of Companies
After passing the Ordinary Resolution at the EGM, you need to file Form SH-7 with the Registrar of Companies (RoC). Ensure that you file this form within 30 days of passing the resolution. You will also have to pay the prescribed fee. Further, attach the following documents:
- Notice of the EGM
- A certified copy of the ordinary resolution along with the explanatory statement.
- Modified Memorandum of Association.
Once the RoC is assured that you have followed the rules, then he would approve the increase. Further, the website of the Ministry of Corporate Affairs (MCA) will reflect the new authorised share capital.
This is the process to increase Authorised Capital of a company. Ensure that you follow the rules pertaining to the increase to make the process seamless. In case of any further questions, you can refer to the above-mentioned sections of the Companies Act, 1961-2013. Good Luck!