How to increase authorized share capital?. Guide by expert CA.

Want to Increase authorized share capital the right way – this guide is from a expert CA in Udaipur covers every step for  PVT Limited companies must take, from board resolution to filing forms.

What is Authorized Share Capital?

According to Section 2 (8) of the Companies Act, 2013 “Authorised Capital” is the capital that is authorised by the memorandum of the company to be the maximum amount of the share capital of the company.

Authorised share capital is also known as registered capital or nominal capital of the company. Authorised share capital is the maximum amount of share capital that a company is allowed to issue to its shareholders as per its Memorandum of Association and Article of Association.

Purpose of Authorized Share capital

Authorized share capital is used to limit the ability of directors to allot new shares which may have consequences over the control over the company. By limiting the number of shares that can be issued, the company ensures that its existing shareholders are not diluted by the issuance of new shares. It also helps to maintain a stable ownership structure and prevent hostile takeovers or other unwanted changes in the company’s ownership.

Which Section of the Companies Act deals about the matter for increase in authorized share capital?

Company can increase its Authorized Share Capital, only if it is authorized by its Articles of Association and after obtaining approval of members by passing an ordinary resolution in Extra-Ordinary general meeting of the company. [Section 61(1)].

Procedure for increase in Authorized Share capital

Before starting with the procedure for increasing the authorized share capital it is necessary to verify the AOA to ensure that there is a provision in Articles of Association referring to the increase of the authorized share capital. If there is no such provision then the company must first make changes to the AOA of the company.

Note: Most of the AOA’s have the provision for increasing the authorized share capital of the company.

Convene a board meeting

It is necessary to convene a Board meeting by providing notice to Director containing agenda for:

a. Increase in the authorized share capital of the company.

b. In the notice, the time, date, and place should be fixed to conduct an Extra-ordinary General meeting for obtaining the approval of the shareholders for increasing the authorized share capital

In the Board Meeting following resolutions should be passed for:-

1. Increase the authorized share capital of the company.
2. fix the date for calling the extra ordinary general meeting for passing the ordinary resolution for increasing the authorized share  capital

Extraordinary general meeting

In the extraordinary general meeting obtain the approval of the shareholders and pass the ordinary resolution to increase the authorized share capital. After passing of the resolution, make necessary changes in MOA in the clause of Authorized Share capital.

File ROC forms with Payment of e-stamp duty–

Form SH-7 should be filed by the company

• Within 30 days of passing the ordinary resolution.
• Pay the e-stamp duty on the increased amount of the Authorized Share Capital through MCA Portal as provided in “The Companies (Fee for filings with Registrar of Companies) Rules, 2014”.
• Notice related to the Extraordinary General Meeting
• Certified true copy of Ordinary Resolution for increase in Authorized Share Capital
•  Copy of altered MOA
•  Copy of altered AOA, if any
•  Shorter notice consent for shorter period , if any
•  Any other document, as may be applicable.

SRN Generation On successful submission of the eForm SH-7:

SRN will be generated and shown to the user which will be used for future correspondence with MCA.

SRN for payment of stamp duty shall also be generated if the user opts to pay the stamp duty electronically through MCA21 system in the eForm

Challan Generation On successful submission of the eForm SH-7

Challan will be generated depicting the details of the fees paid by the user to the Ministry. It is the acknowledgement to the user that the eForm has been filed. Email when an eForm is completely processed by the authority concerned, an acknowledgement of the same with related documents, if any is sent to the user in the form of an email to the email id of the company.

Additional fees Rules

Delay up to 6 months	2.5 % for the period of delay
Delay beyond 6 months	3% for the delay beyond 6 months

Penalty in case of non-compliance 

• Section 61 and 65 of Companies Act, 2013 does not discuss about the penalty, however, the act mentions about the penalty in section 450 just in case of non-compliance with the rules, the company and the officers in default need to pay Rs. 10,000.
• On continuous default, the company needs to pay Rs. 1000 per day till the default is rectified.
• If the corporate fails to submit SH-7 within 30 days, then Rs. 1000 fine per day is there till the default continues or Rs. 25 Lakh whichever is a smaller amount.

Approval of the Registrar

If the procedure mentioned in the Companies Act and the Companies Rules are followed to increase the authorized capital of the company then the registrar would approve the filing and increase the authorized share capital of the company. The new authorized share capital will be reflected on the MCA portal.

The afore said are the tips from an expert Company Registration consultant in Udaipur on how to smoothly increase authorized share capital for your PVT Limited company,  Covers fees, forms, and timelines