Increasing Authorized Share Capital for Private Limited Companies: A Brief Overview

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Increasing Authorized Share Capital for a Private Limited Company: A Simplified Guide

As businesses grow, their financial needs expand over time. These needs can be both short-term and long-term. While short-term requirements can often be met through loans and advances, sustaining long-term operations demands more significant funding. Private limited companies can address this by increasing their authorized share capital. However, this process must adhere to regulations outlined in the Companies Act.

Understanding Authorized Share Capital:

Authorized share capital represents the maximum value of shares a company can issue as specified in its memorandum. In contrast, paid-up capital pertains to issued, subscribed, and paid shares. The paid-up capital cannot surpass the authorized share capital. To introduce new shareholders, a company with paid-up capital equal to authorized capital can follow these steps:

Increase Authorized Share Capital: By increasing authorized capital, new shares can be issued, or shares can be transferred from existing shareholders to new ones.

Reasons for Increasing Authorized Share Capital:

Companies may seek to increase authorized capital for various reasons:

  • Meeting substantial financial needs
  • Funding new business ventures
  • Merging two businesses and injecting funds
  • Issuing more capital
  • Converting debt to equity
  • Legal compliance
  • Required Documentation:

  • Amended or latest Memorandum of Association (MOA)
  • Updated Articles of Association (AOA) if applicable
  • Approved ordinary resolution by shareholders

Procedure for Increasing Authorized Share Capital:

  • Check Company's Articles of Association: Ensure that the Articles allow for an increase in authorized share capital. If not, amend the Articles.
  • Board Meeting and Resolutions: Convene a board meeting to approve increasing authorized capital and altering the MOA. Set a date for a General Meeting.
  • General Meeting (EGM): Issue a notice of EGM at least 21 days before the meeting. Pass an Ordinary Resolution to increase authorized share capital and modify the MOA.
  • File Form SH-7: File a notice of share capital alteration (Form SH-7) with the Registrar of Companies (ROC) within 30 days. Include relevant documents.
  • Pay e-Stamp Duty: Pay e-stamp duty for the increased authorized capital through the MCA Portal.
  • Update MOA and AOA: Note the alterations in every copy of the MOA and AOA.
  • Allotment of Shares: Issue new equity shares to increase paid-up capital.

Penalties for Non-Compliance:

Non-compliance with the procedures may incur penalties. The Companies Act outlines penalties, with fines up to Rs. 10,000 and additional daily fines for continuous defaults.


Frequently Asked Questions (FAQs):

  • Regulation of Share Capital Increase: The Companies Act, 2013 governs the procedure for increasing share capital by altering the MOA.

  • Empowerment for Increase: Share capital increase requires ordinary resolution approval from shareholders, unless MOA/AOA specify a higher percentage.

  • Resolution for Increase: Members pass an ordinary resolution in a general meeting to increase authorized capital and modify the MOA.

  • When to Increase Authorized Capital: Increase authorized capital when additional funds are needed or more shares must be issued.

  • Please note that this is a simplified summary, and legal advice should be sought for accurate guidance based on your jurisdiction and specific circumstances. 

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