Increasing Authorised capital
Increasing the authorized capital of a company involves specific
steps and filings with the Registrar of Companies (RoC) in India.
Here’s a detailed guide on how to proceed:
Steps to Increase Authorized Capital
Board Meeting
Convene a board meeting and pass a resolution to approve the
increase in authorized capital. The resolution should specify the
amount by which the capital is to be increased.
Shareholders' Approval
Depending on the company's Articles of Association and the
increase amount, obtain approval from shareholders through a
special resolution at a general meeting.
Amend Memorandum of Association (MoA)
Check the current MoA to ensure it allows for the proposed
increase. If not, amend the MoA to reflect the new authorized
capital.
File Form SH-7
Form SH-7 is used to notify the RoC of the increase in authorized
share capital. Here’s how to fill out Form SH-7:
- Part A Fill in company details such as Corporate Identity Number (CIN), name, registered office address, email ID, etc.
-
Part BSpecify details of the increase in authorized
share capital:
1. Nominal share capital before increase.
2. Nominal share capital after increase.
3. Number of shares before increase.
4. Number of shares after increase.
-
Part CAttach supporting documents, which typically
include:
1. Board resolution approving the increase.
2. Shareholders’ special resolution (if applicable).
3. Amended MoA reflecting the increased authorized capital.
4. Other relevant documents as required by the RoC.
Payment of Fees
Pay the prescribed fees for filing Form SH-7. The fee structure
varies based on the authorized capital and other factors.
Submission
Submit Form SH-7 electronically through the Ministry of Corporate
Affairs (MCA) portal (www.mca.gov.in).
RoC Approval
Once the RoC verifies the form and documents and is satisfied with
the compliance, they will approve the increase in authorized
capital.
Important Points to Consider
Timeline
Ensure compliance with the timelines prescribed under the
Companies Act, 2013, and rules issued thereunder for filing Form
SH-7.
Stamp Duty
Check if stamp duty is applicable on the increase in authorized
capital, as this varies by state.
Documentation
Ensure all documents are accurate and complete to avoid delays or
rejections in the filing process.
Conclusion
Increasing the authorized capital of a company requires careful
planning, compliance with legal requirements, and timely filings
with the RoC. It’s advisable to consult with a company secretary
or legal professional to ensure all steps are followed correctly
and the necessary documentation is prepared accurately.
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Increasing Authorized Capital FAQ's
What is authorized capital, and why is it important to increase it?
Authorized capital is the maximum amount of share capital a company is permitted to issue as per its Memorandum of Association (MoA). Increasing it allows the company to issue more shares and raise additional funds for expansion or operations.
Does increasing authorized capital affect the company’s valuation?
No, increasing authorized capital does not directly affect the company's valuation. It only provides the company with the ability to issue more shares, which could impact valuation indirectly if shares are issued.
Is shareholder approval mandatory for increasing authorized capital?
Yes, shareholder approval is required through a resolution passed at a general meeting. This ensures transparency and compliance with the company's governance policies.
Does increasing authorized capital impact existing shareholders?
Not immediately. However, if additional shares are issued, it may dilute the ownership percentage of existing shareholders unless they subscribe to the new shares.
Are there any restrictions on the amount by which authorized capital can be increased?
Generally, there are no statutory restrictions, but the company must ensure compliance with its Articles of Association (AoA) and legal provisions of the governing laws.
Does an increase in authorized capital lead to additional regulatory fees?
Yes, increasing authorized capital typically involves paying higher registration fees and stamp duty based on the increase amount, as prescribed by the regulatory authority.
Can authorized capital be reduced after increasing it?
Yes, but reducing authorized capital is a more complex process, requiring court or tribunal approval, creditor consent, and compliance with regulatory requirements.
How does increasing authorized capital benefit startups?
Startups often increase authorized capital to attract more investors, raise equity funding, and scale their operations without facing capital limitations.
Does increasing authorized capital require changes to the company's Memorandum of Association (MoA)?
Yes, an increase in authorized capital requires amending the Capital Clause of the MoA to reflect the revised amount.
Can a company increase authorized capital multiple times?
Yes, a company can increase authorized capital multiple times, provided it complies with legal and procedural requirements each time and obtains necessary approvals.
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