How to Increase Authorised Capital: Step-by-Step Guide Under Indian Company Law

Overview : The share capital of a company can be increased by the issuance of new shares of the company. In the adverse situation of uncertain or lower cash flow in companies, increasing authorised capital can play a crucial role. An increase in equity simply means raising money for startup companies and growing businesses. The blog elaborates on the procedure for ‘Increasing the Authorised Capital of a Company’ in India.

In the scenario of uncertain cash flow, which is undeniably the most common limitation of many new companies, Equity increase plays a significant role. An increase in equity raises money for the startup companies and growing businesses. The share capital of a company can be increased by issuing new shares.

The best part about equity increase or equity financing is that there is no fixed obligation to pay dividends. Apart from this, it allows the company to share risks and liabilities of company ownership with the new investors. Equity Increase further allows the company to grow or diversify into other areas.

Minimum Authorised Share Capital Requirement for Various Companies

• Rs. 1 Lakh for OPC
• Rs. 1 Lakh for Private Limited Company
• Rs. 5 Lakh for Public Limited Company
• Not applicable in case of LLP

What is Authorised Capital?

Authorised capital, also called registered capital, is the maximum share capital a company can issue to its shareholders, as stated in its Memorandum of Association (MoA). It is distinct from issued capital (the actual amount issued to shareholders) and paid-up capital (the amount paid by shareholders). Increasing the authorised capital enables a company to raise additional funds by issuing new shares.

Reasons for Increasing Authorised Share Capital

• Addressing the Financial needs of the company
• Funding new business initiatives
• Assisting the Restructuring plan of the company, such as Mergers or Acquisition
• Issue of Additional Shares
• Convert Debt into Equity
• Fulfilling Regulatory Requirements

Main Features of Authorised Share Capital

• A company must hold at least one share as its authorized share capital.
• Companies can issue different types or classes of shares: Equity Shares, Preference Shares, and Sweat Equity shares, which are subject to the clauses mentioned in the Act.
• Company can increase its Authorised share capital from time to time through an Ordinary Resolution passed by its shareholders subject to Alteration in AOA.
• Company must file the requisite documents with the Registrar of Companies (ROC) to increase or decrease its authorised share capital.
• Company can't issue shares exceeding the authorised share capital.
• The authorised capital is divided into the shares of a fixed value. A Company can issue shares to the public as per the authorisation given by the shareholders in the general meeting.

Requisite Documents to Increase Authorised Share Capital

Digital Signature Certificate: A copy of the DSC from authorised director of the company.

Memorandum of Association (MOA): A copy of the updated or latest version of the memorandum of association.

Articles of Association (AOA): A copy of the latest version of Articles of Association (AOA).

Certification of Incorporation: A copy of the Certificate of Incorporation of the company.

PAN Card: A copy of the PAN Card in the name of the company.

Step-by-Step Process of Raising Authorised Capital

Step 1: Check Your Articles of Association (AoA)

The first step in increasing the authorised share capital of a company is to check its AOA to ensure whether it allows any increase in authorised capital or not. According to Section 61 of the Companies Act, 2013, authorization in Articles of Association is a prerequisite to increase the Authorised capital of the company.

While checking AoA, if it is found that there is no provision for increasing authorising share capital, then it needs to be amended first through a special resolution.

Step 2: Hold a Board Meeting

The next step in the process is to hold a board meeting. The notice for the meeting is to be issued as per the provisions of section 173(3) of the Companies Act, 2013. The meeting must be conducted to discuss increasing authorised capital and obtain approval of the board members for the same.

In the meeting, the proposed increase amount also needs to be decided along with the amendments that are required to take place in the MOA. In the meeting, a resolution must be passed to approve the increase in authorised capital. Additionally, authorise the issuance of a notice for convening an Extraordinary General Meeting (EGM).

Step 3: Issue Notice for Extraordinary General Meeting (EGM)

The next step is to draft and issue a notice to each shareholder, director and auditor according to the provisions of Section 101 of the Companies Act, 2013, to informing them about this EGM. The notice must clearly state the agenda, venue, date, time and a clear resolution for the proposed increase in authorised capital.

Step 4: Conduct the Extraordinary General Meeting (EGM)

The step involves holding the EGM on or before the scheduled date and time to discuss and obtain the shareholders' approval to increase the authorised capital. In the EGM, a special resolution also must be passed under section 61(1)(a) of the Companies Act, 2013, to authorise changes to the company's MOA reflecting the increased authorised capital.

Step 5: Alteration of Memorandum of Association (MoA)

It's important to make changes in the Capital clause in the Memorandum of Association of the company to revise the approved authorised capital. The updation in MOA must also include the revised capital structure of the company.

Step 6: File Form SH-7 with Registrar of Companies (ROC)

Within 30 days of passing the special resolution, it's mandatory to file Form SH-7 with the ROC. The reason is that this form notifies the ROC of the change in authorised capital. Along with the form, Section 64 makes it mandatory to submit some additional documents, including a Copy of the Board Resolution, a Copy of the Special Resolution passed at the EGM, and an Updated/Amended Memorandum of Association.

Step 7: Checking of Documents

In this step, the concerned Registrar runs the checking process of eForms and attached documents to approve the increase in authorised share capital if everything is found valid during the checking process.

The step also involves issuing notice for the changed share capital to the Registrar. Filing a notice in the prescribed form with the Registrar is to be done within 30 days of increase, if it changes its share capital for increase in authorised share capital. It has to be filed along with a copy of altered Memorandum and has to be done as per the sub-section (1) of section 61.

It is important to know that no special resolution needs to be passed in order to increase the authorised capital. Alteration in the Memorandum of Association is only required if there is an amendment in the specific clause of MOA as directed in Section 13. Moreover, amendment in capital clause of MOA to increase the authorised capital is governed by Section 61 of the Companies Act, 2013. On the other side, section 61 is silent regarding the nature of the shareholders’ resolution.

Conclusion

Increasing authorised capital is a crucial strategic move for companies looking to expand their businesses so that they can cater to a larger population or foray into a new market. Such businesses must comply with the regulatory compliance and the Indian Company Law, to raise their authorised capital smoothly. The aforementioned process of Increasing Authorised Capital in a company certainly would be helpful in raising capital for your startup company to overcome its financial barriers and thrive well. Consult a professional expert to ensure accuracy and compliance.

Author Bio

Editorial Team | in

Setindiabiz Editorial Team is a multidisciplinary collective of Chartered Accountants, Company Secretaries, and Advocates offering authoritative insights on India’s regulatory and business landscape. With decades of experience in compliance, taxation, and advisory, they empower entrepreneurs and enterprises to make informed decisions.