Increase in Authorised Capital

Authorized capital refers to the maximum amount of capital that a company is permitted to issue and allocate to its shareholders. It is a fundamental parameter defined in the Memorandum of Association (MoA) of a company. Over time, companies may find the need to expand their operations, undertake new projects, or meet evolving financial requirements. When the existing authorized capital proves insufficient for these purposes, companies have the option to increase their authorized capital.

What is the Increase in Authorized Capital of a Company?

In the dynamic world of business, companies often seek ways to fuel growth and capitalize on emerging opportunities. One significant strategy is the increase in authorized capital, which allows a company to expand its financial capabilities by raising its maximum permissible share capital. Authorized capital serves as the ceiling for the total equity a company can issue to shareholders, providing a framework for future fundraising activities. When a company recognizes the need for additional funds whether for launching new products, entering new markets, or enhancing operational efficiency it may opt to increase its authorized capital. This decision not only reflects the company's ambition to grow but also plays a crucial role in attracting investors by demonstrating its readiness for expansion.

What is the Need for Increasing Authorised Capital in Companies ?

1. Facilitating Growth:

Increasing authorized capital is essential for Indian companies aiming to expand their operations, enter new markets, and undertake strategic initiatives, ensuring they remain competitive in a dynamic business landscape.

2. Attracting Investors:

A heightened authorized capital not only signals a company's confidence in its growth prospects but also attracts potential investors, fostering investor confidence and creating opportunities for strategic partnerships.

3. Financial Flexibility:

The need for increased authorized capital arises from the imperative of financial flexibility, allowing companies to meet operational needs, invest in technology, and maintain infrastructure without compromising their financial health.

4. Debt Management:

An expanded authorized capital provides companies with the flexibility to manage debt effectively, reducing financial strain and enhancing creditworthiness in the eyes of creditors and financial institutions.

5. Regulatory Compliance:

Compliance with regulatory standards, particularly for listed companies, necessitates an increase in authorized capital to meet stock exchange listing requirements and adhere to the legal framework outlined in the Companies Act, 2013.

6. Seizing Opportunities:

Companies often need additional capital to seize emerging market opportunities, respond to economic dynamics, and stay ahead of industry trends, requiring an increased authorized capital for strategic and timely investments.

7. Competitive Edge:

Increased authorized capital positions companies to maintain a competitive edge, enabling them to withstand industry competition, pursue growth strategies, and capitalize on market trends to secure long-term success

8. Adaptability to Change:

In a rapidly evolving business environment, the ability to adapt to change is crucial. Increased authorized capital empowers companies to navigate market dynamics, technological advancements, and changing consumer preferences with agility and resilience.

9. Transparency and Governance:

Compliance with regulatory standards ensures transparency and good governance. Increasing authorized capital aligns companies with legal frameworks, fostering a culture of accountability and trust among stakeholders.

10. Strategic Decision-Making:

The decision to increase authorized capital is not just a financial transaction but a strategic move that positions companies for growth, strengthens their financial foundations, and enables them to make informed decisions in a dynamic business environment.

What are the Documents required for Increase in Authorized Capital of the Company?

To increase the authorized capital of a company, several key documents are typically required. The specific requirements can vary depending on the jurisdiction and the company's structure.

Amendment to the Memorandum of Association: Company's memorandum of association (MoA) reflecting the new authorized capital amount. This document must be updated to include the revised figures.

Articles of Association (AOA): Review of the AOA to ensure compliance with internal rules regarding share capital. If changes are necessary, an amended AOA must be prepared and submitted.

Form SH-7: This form is filed to notify the increase in authorized capital with the relevant regulatory authority.

Shareholder Approval: Approval from shareholders during the general meeting, including details of the voting process and the resolution passed.

Form MGT-14: Required for filing resolutions with the Registrar of Companies (RoC).

Affidavit or Declaration: In some jurisdictions, an affidavit or declaration by a director or company secretary confirming that all necessary approvals have been obtained.

What is the Procedure for Increasing the Authorised Capital for a Company?

Step1. Hold a Board Meeting: A formal notice must be issued to all directors before the board meeting to discuss and approve the increase in authorized capital. A resolution must be passed by the board of directors approving the increase in authorized capital.

Step2. Shareholders’ Approval: An Extraordinary General Meeting (EGM) is called to seek shareholders' approval. The Resolution is drafted and passed approving the increase in authorized capital during the meeting.

Step3. Amendments to MoA and AOA: The capital clause in MoA is updated to reflect the new authorized capital. If the AOA contains clauses on the authorized capital, these must be amended as well.

Step 4: Filing Forms with the Registrar of Companies (RoC) File necessary forms with the Registrar of Companies (RoC) within the prescribed time limit.

Documents Required for filing forms with the RoC:

Form SH-7 (Notice to RoC of Increase in Authorized Capital): Required to inform the RoC about the increase in authorized capital.

Attachments:

1. Board Resolution
2. Shareholders’ Resolution
3. Altered MoA

Form MGT-14: Required for filing the resolution passed by shareholders to amend the authorized capital.

Attachments:

1. Copy of the Special or Ordinary Resolution
2. Notice of EGM with explanatory statement
3. Amended MoA and AOA (if required)

Penalties of Non-Compliance with Authorized Capital Increase

1. Late Filing of Forms (SH-7, MGT-14): If the company fails to file the necessary forms (such as Form SH-7 and Form MGT-14) within the prescribed time limit (usually 30 days from the passing of the resolution) the company may be fined for each day of delay, starting from the due date of filing, with a minimum penalty of ₹1,000 per day.

2. Non-Amendment of Memorandum of Association (MoA): If the company fails to amend the Memorandum of Association (MoA) to reflect the increased authorized capital, this can also result in non-compliance penalties.

3. False or Incorrect Filing: If false information is filed with the RoC or the forms and resolutions are not accurate or misrepresent the facts the company and the officers responsible may face penalties.

How can JKStartup360 assist?

JKStartup360 simplifies the process of increasing a company’s authorized capital, ensuring a smooth transition to meet expanding financial needs. From guiding you through essential board and shareholder approvals to preparing and filing critical forms like SH-7 and MGT-14, we manage each step to comply with the Companies Act, 2013. Our expert team reviews and amends your Memorandum of Association (MoA) and Articles of Association (AOA) as needed, while keeping you informed on regulatory requirements and deadlines to avoid penalties. With JKStartup360, you gain the support to strategically enhance your financial capacity, positioning your business for growth with confidence.