For any growing business, capital is the lifeblood that fuels expansion, innovation and long-term stability. As your company scales new heights, you may find your existing authorized capital limiting your potential. This is where increasing your authorized capital becomes a strategic necessity. Praman Advisors Private Limited, a trusted name in business services, offers comprehensive assistance to navigate this crucial process seamlessly, ensuring compliance with all regulatory norms.
1. Overview: What is Authorized Capital and Why Increase It?
Authorized Capital, also known as nominal or registered capital, is the maximum amount of share capital that a company is legally permitted to issue to it’s shareholders as per it’s Memorandum of Association (MoA). It represents the upper limit of funds a company can raise by issuing shares without amending it’s foundational documents.
Why would a company need to increase it’s authorized capital?
- Future Fundraising: To issue new shares to attract new investors (angel investors, venture capitalists) or conduct rights issues, providing a clear path for equity financing without legal hurdles.
- Business Expansion: To fund ambitious growth plans, new projects, acquisitions or diversification into new markets.
- Improved Financial Standing: A higher authorized capital can enhance your company's net worth and creditworthiness, making it more attractive to lenders for loans and credit facilities.
- Regulatory Compliance: Certain government tenders or large contracts may require a minimum authorized capital, making an increase essential to qualify.
- Employee Stock Option Plans (ESOPs): To create a sufficient pool of shares for employee stock options, attracting and retaining top talent.
- Debt-to-Equity Conversion: To convert existing debt into equity, thereby strengthening the balance sheet and reducing liabilities.
2. Benefits of Increasing Authorized Capital:
- Enhanced Investor Confidence: A larger authorized capital signals to potential investors and lenders that the company has the capacity for future fundraising and sustained growth.
- Flexibility in Capital Raising: It provides the agility to issue shares as and when needed, avoiding delays and complex legal amendments during critical funding rounds.
- Improved Market Credibility: It projects an image of financial strength, maturity and growth potential to all stakeholders including clients, suppliers and the public.
- Smoother Business Operations: With adequate authorized capital, companies can pursue larger projects, enter new ventures and manage unforeseen financial challenges more effectively.
- Strategic Growth Tool: It acts as a foundational element for long-term business strategies, enabling seamless scalability and robust financial planning.
3. Documents Required for Increasing Authorized Capital:
To initiate the process of increasing authorized capital, you will typically need the following documents:-
- Copy of the current Memorandum of Association (MoA): Specifically the capital clause.
- Copy of the current Articles of Association (AoA): To check for provisions allowing the increase. If not present, the AoA will need to be amended first.
- Certified True Copy of Board Resolution: Approving the increase in authorized capital and calling for an Extraordinary General Meeting (EGM).
- Certified True Copy of Ordinary Resolution: Passed at the EGM by shareholders, approving the increase in authorized capital and the alteration of the MoA.
- Notice of the EGM along with the Explanatory Statement: Detailing the purpose and rationale behind the capital increase.
- Altered Memorandum of Association (MoA): Reflecting the new authorized capital.
- Altered Articles of Association (AoA) (if applicable): If an amendment was required to include the provision for increasing authorized capital.
- Digital Signatures (DSC) and Director Identification Numbers (DIN) of the directors.
- Identity and Address Proofs of Directors and Shareholders (if required for KYC updates).
- Any other optional attachments as may be needed by the Registrar of Companies (ROC).
4. Process to Apply for Increased Authorized Capital:
Praman Advisors Private Limited streamlines the entire process for you. Here is a general outline of the steps involved in increasing authorized capital in India:-
- Check Articles of Association (AoA): Our experts will first review your company's AoA to determine, if it authorizes the increase in share capital. If not, the AoA will need to be amended first (requiring a Special Resolution).
- Convene a Board Meeting: A Board Meeting is held to approve the proposed increase in authorized capital, alter the capital clause of the MoA (subject to shareholder approval) and to fix the date, time and venue for an Extraordinary General Meeting (EGM).
- Issue Notice of EGM: A clear 21-day notice (or a shorter notice, if agreed by 95% of voting members) is sent to all shareholders, directors and auditors, specifying the agenda of increasing authorized capital.
- Hold Extraordinary General Meeting (EGM): Shareholders convene and pass an Ordinary Resolution (unless the AoA specifies a higher percentage like a Special Resolution) to approve the increase in authorized capital and the consequential alteration to the Memorandum of Association.
- File Forms with ROC: Within 30 days of passing the Ordinary Resolution in the EGM, the following e-forms are filed with the Registrar of Companies (ROC) via the MCA portal:
- e-Form SH-7: Notice of alteration of Share Capital, intimating the ROC about the increase.
- e-Form MGT-14 (if applicable): If a Special Resolution was passed (e.g. for AoA alteration), this form is also filed.
- Payment of Stamp Duty: Applicable stamp duty on the increased authorized capital must be paid through the MCA portal.
- Update MOA and AOA: Once the ROC approves the filings, all physical and digital copies of the Memorandum and Articles of Association must be updated to reflect the new authorized capital.
- ROC Approval and Master Data Update: The ROC verifies the submitted documents, and upon satisfaction, updates the company's master data on the MCA portal, reflecting the increased authorized capital.
5. Fees and Timelines:
The fees and timelines for increasing authorized capital can vary based on several factors including the amount of increase and the state where the company is registered:-
- ROC Filing Fees: These are government fees calculated based on the new total authorized capital and increase progressively with higher capital amounts. For instance, for an authorized capital up to ₹1,00,000, the fee might be ₹5,000 and it increases significantly for higher slabs (e.g. ₹2,35,000 + ₹75 per ₹10,000 above ₹1,00,00,000) plus GST as applicable on these fees.
- Stamp Duty: This is a state-specific fee, generally ranging from 0.15% to 0.5% of the authorized capital increase, subject to certain maximum limits depending on the state.
- Professional Fees: We charges a professional fee for drafting documents, coordinating meetings and filing forms etc. These fees are competitive and vary based on the complexity and the extent of services required. Please contact Praman Advisors directly for a precise quote.
Manju Laur: 📞 +97119 94042
Timelines:
The entire process, from board meeting to ROC approval, typically takes 02 to 04 working days for drafting and filing, assuming all documents are in order and no unforeseen complications arise. However, the overall timeline can extend, if AoA amendment is required or if there are delays in obtaining necessary approvals or documents from the company's end. It is crucial to note that Form SH-7 must be filed within 30 days of passing the resolution to avoid penalties.
Frequently Asked Questions
The authorized Capital is the maximum capital a company is allowed to issue. The paid-up Capital is the amount of capital that has been actually subscribed and paid by the shareholders against the shares issued by the company. Increasing authorized capital gives the company the capacity to issue more shares, while paid-up capital increases only when those shares are actually issued and paid for.
No, it is not mandatory. Increasing authorized capital simply creates the headroom for future share issuance. The company can choose to allot shares at a later date, as per it’s financial requirements.
If the AoA does not contain a provision for increasing authorized capital, it must first be amended by passing a Special Resolution in an EGM, before proceeding with the increase in authorized capital.
Failure to file Form SH-7 within 30 days of passing the resolution can attract significant penalties including a penalty of ₹1,000 per day of delay, capped at ₹25,00,000/- for the company and it’s officers.
Yes. We offer end-to-end services including advisory, drafting of resolutions and other required documents, conducting necessary meetings and filing all forms with the Registrar of Companies (ROC) on your behalf.
