Increase in Authorised Capital: What is Authorised Capital, Documents, Process, Fees, and Time Taken

Capital is an important aspect of every business. Without adequate finance, a business cannot survive. For a business, one of the most appealing ways to raise finance is through the dilution of its share capital. But in this process, the most important requirement that the company needs to check is the authorised capital of the company. The authorised capital is the maximum permissible capital that a company can issue as shares. There are many instances in the corporate world where companies are required to increase in authorised share capital.

What is Authorised Capital?

Authorised capital is mentioned in the memorandum of association (MOA) of the company. It is the maximum amount of capital a company can issue as shares. On the other hand, issued capital is the capital that has been issued by the company.

An authorised capital has been defined under Section 2(8) of the Companies Act, 2013. The company can issue more shares than the authorised share capital after increasing the authorised share capital in its MOA.

To increase the authorised capital, the company has to alter its charter documents and get some regulatory approvals.

Need for Increase in Authorised Share Capital

There are many reasons that can lead to an increase in authorised share capital. A few of them are:

• Expansion of operations: Many times, companies want to expand their operations. For such expansion, a hefty sum of money is required, and the safest option to get the funds is through the issue of shares. This is the reason that it can lead to an increase in authorised share capital.
• To avoid a financial crunch: There can be an occurrence of a situation where there is less liquidity in the company, and to avoid a financial crunch, the company might increase its authorised capital to get funds and increase its liquidity.
• Regulatory Requirements: There can be regulatory requirements to increase the authorised capital. To avoid the cost of non-compliance, the companies are required to undergo the necessary procedures and increase their authorised capital.
• Mergers and amalgamations: Mergers and amalgamations are becoming a very common practice nowadays. To fund these important corporate actions, companies increase their authorised capital to utilise the funds to acquire another venture.
• Further Public Offer: There can be situations where companies have already exhausted their authorised capital limit; in such cases, companies are required to increase their authorised capital to make further public offers.

Documents Required for Increase in Authorised Capital

An increase in authorised capital is completed only after filing the necessary forms along with proper attachments. The companies shall, within 30 days of shareholder approval to increase the authorised share capital, file Form SH-7 along with the necessary documents, namely:

• Copy of the original and amended MOA
• Copy of the original and amended AOA
• Copy of shareholders' approval received by way of resolution

Process for Increase in Authorised Share Capital

The companies are required to comply with the following steps for authorised capital increases:

1. Check Articles of Association
   • Check Article of Association: The increase in authorised share capital is required to be approved by the articles of the company. The company first needs to check whether the articles of the company contain a provision for an increase in authorised share capital.
   • Alter the Articles of Association: If the Articles of the Company do not contain a provision for an increase in authorised share capital, then the company should first alter its AOA to add such a provision.
2. Convene a board meeting
   • Passing board resolution: The company should first convene a board meeting to obtain the approval of the board for the increase in authorised capital.
   • Call EGM: The board shall fix the day, date, time, and venue of the extraordinary general meeting [EGM] to obtain the approval of the shareholders of the company.
3. Obtain shareholder approval

   Conduct the extraordinary general meeting [EGM] of the shareholders on the day, date, venue, and time already decided to obtain the consent of the shareholders to increase in authorised share capital of the company by passing an ordinary resolution.

4. Necessary Filings with ROC

   After obtaining the shareholder's approval, the company should proceed to file:

   • Form MGT-14

     The company should file Form MGT-14 with the registrar within 30 days of passing the resolution for approval of the increase in authorised share capital, along with the following details:

     • Company information, including CIN and registered office
     • The purpose of filing the form
     • Date of passing the resolution
     • DSCs and DINs of concerned persons
     • Notice of EGM
     • A certified copy of the resolution passed at EGM
     • Copy of the amended MOA and AOA
   • Form SH-7

     Form SH-7 within 30 days of the date of passing the resolution in the general meeting to authorise the increase in authorised capital. The following file should be filed with Form SH-7:

     • Company information
     • Type of Resolution
     • Date of the meeting
     • SRN of Form MGT-14 already filed
     • Original and increased authorised share capital
     • DSCs and DINs of the concerned persons
   • Pay the required stamp duty, as may be applicable

Fee for Increase in Authorised Capital

The fee for the increase in authorised capital depends on the proposed authorised capital. The fee structure for the increase in authorised capitalis as follows:

It should be noted that to increase the authorised share capital, an additional stamp duty is payable @0.15% of the increased authorised capital.

Bizfoc can help in making the entire process of increasing authorized capital smooth. Our professional fee for the increase in authorised capital is:

Time Taken For Registration to Increase in Authorised Capital

The company is required to file the ordinary resolution at its duly convened extraordinary general meeting to authorise the proposal to increase the authorised share capital of the company. After the resolution has been passed, the company should file Form SH-7 with the Registrar of Companies [ROC] within 30 days from the date of passing the resolution.

The time taken to register increased authorised share capital is 4 to 5 working days.

Penalty for Non-Compliance

Sections 61 and 65 of the Companies Act, 2013 provide the penalty in case the company violates any rules to increase the authorised capital. In case of non-compliance, the company and every officer in default will be liable to a penalty of Rs. 10,000/-. In case the company defaults in filing Form SH-7, it shall be liable to a fine of Rs. 1,000 per day, which may extend up to Rs. 25,00,000/-.

Why Choose BizFoc for an Increase in Authorised Share Capital?

BizFoc is the easiest solution for all the formalities and processes involved in the increase in authorised share capital. BizFoc can help in the following ways:

1. Expertise in the field: Our team consists of highly professional people who have adequate skills and knowledge to assist you in having a successful increase in authorised share capital.
2. Form filing assistance: BizFoc will give you proper assistance, starting from amending your MOA/AOA to filing several forms involved in the process. Forms for the increase in share capital are SH-7 and MGT-14.
3. Track record of success: BizFoc has helped many of its corporate clients increase their authorised share capital without facing any regulatory action. This gives BizFoc a track record of success.

Conclusion

In a nutshell, an increase in authorised share capital is done due to several reasons, including raising finance, a further public offer, and expanding operations. This involves various essential steps like altering articles of association, convening a board meeting, obtaining shareholders' approval, and filing necessary forms with the registrar of companies. Any non-compliance with the provisions and rules for an increase in authorised share capital can lead to stringent penalties and hefty fines. BizFoc is here to make this whole process easier by providing end-to-end support, starting from amending your charter documents to filing all the necessary forms with the regulatory authorities.

Frequently Asked Questions Related to Increase in Authorised Share Capital