Increase in Authorised Capital

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By Hiral Vakil on March 11, 2019

The “Authorised Capital” is the maximum amount of share capital that a company can issue to its members/shareholders. The capital clause of Memorandum of Association needs to be amended by passing special resolution of board to issue new shares or raise the capital of the company.

What is the procedure for increasing authorised share capital?

  1. Check whether the company is authorised by its Articles of Association to increase the share capital if not proceedings need to be done with objective of altering them.
  2. Convene a Board Meeting for enabling the board to call for Extraordinary general meeting(if not passed at Annual General Meeting) to get approval from shareholders for increase in authorised share capital.
  3. Send notice to call extraordinary general meeting of shareholders with clear agenda,explanatory statements and resolutions to be passed to alter Memorandum of Association and Articles of Association for increasing authorised share capital.
  4. Pass the resolution for increasing authorised share capital of company and do corresponding alterations in MoA and AoA by Special resolution.
  5. Authorise the board to file necessary forms and resolutions with ROC.
  6. File e-form SH-7 within 30 days of passing Ordinary Resolution with ROC by paying requisite fee.
    • After consulting the AoA the company has to convene board meeting. Notice for general meeting is to be given to every member of the company not less than 21 days of commencement of meeting with place,date,day,time and business to be transacted at the meeting.
    • After the notice EGM is convened and the members vote in favour or in against increasing the authorised share capital of company and during the meeting alteration takes place. After holding EGM members of the board pass an ordinary resolution.

How to alter Memorandum and Articles of Association?

A company by special resolution can increase its authorised share capital by altering Memorandum of Association.

Clause V of the Memorandum of Association and Clause 4 of the Articles of Association has to be altered. If the company is not authorised to amend the articles of association then it has to be amended by passing a special resolution and on every alteration of articles a copy of order approving such alteration has to filed with registrar with a printed copy of altered articles within period of 15 days.

A Notice is given to the registrar within period of 30 days of such alteration along with altered Memorandum.

Filing e-form SH-7

As per Section 64, when a company alters its share capital, or an order is passed by Government for increasing the authorised capital or company redeems any redeemable preference shares the notice of such alteration, increase or reduction shall be filed by the company with Registrar in Form SH-7 along with a fee. Following documents are attached:

  • Notice of Extraordinary General Meeting.
  • Certified True Copy of ordinary resolution.
  • Altered Memorandum of Association.
  • Altered Articles of Association.

Filing e-form MGT-14

A company has to file with concerned ROC certain resolutions and agreements after passing the resolutions at meeting.The particulars of such resolutions are to be filed along with this form within 30 days of passing the resolution.

A copy of every resolution or agreement along with explanatory statement under section 102 has to be annexed to the notice calling the meeting in which resolution is proposed with registrar in 30 days.Following documents are to be attached with the form:

  • Certified true copy of resolution along with explanatory statement under section 102.
  • Altered MoA and Altered AoA.

FAQs:

1. Whether Stamp Duty is paid on increase in Authorized Capital?

Yes, Stamp Duty is payable on increase in Authorised capital and is applicable as per the Stamp Act/Rules of concerned State/Union Territory.

2. What is the difference between authorized capital and paid up capital?

  • Authorised capital: Authorised capital is the maximum capital that the company is allowed to raise through the sale of its shares.
  • Paid up capital:It is the part of called up capital which has been actually paid by shareholders and received by the company.It can never be more than Authorised capital.