How to Increase Authorized Share Capital of a Private Limited Company

Authorized share capital is the maximum amount of share capital that a company is authorized to issue to its shareholders. If your private limited company needs additional funds, increasing the authorized share capital is often the first step. This article explains the process to increase the authorized share capital of a private limited company, ensuring compliance with the Companies Act, 2013.

What is Authorized Share Capital?

Authorized share capital is the limit defined in the company’s Memorandum of Association (MOA) regarding the shares the company can issue. A company cannot issue shares beyond this limit unless it increases its authorized share capital by following the prescribed legal procedure.

Reasons to Increase Authorized Share Capital

  1. To raise additional funds for business expansion or operations.
  2. To accommodate the issuance of new shares to investors or employees.
  3. To comply with the terms of agreements such as funding or mergers.

Procedure to Increase Authorized Share Capital

The process involves legal steps and requires compliance with regulatory filings. Here is a step-by-step guide:

1. Check Articles of Association (AOA)

Ensure that the Articles of Association (AOA) of the company allow for increasing the authorized share capital. If not, amend the AOA by passing a special resolution in the shareholders' meeting.

2. Convene a Board Meeting

Call a board meeting to discuss and approve the proposal for increasing the authorized share capital. The board must:

  • Approve the draft notice for the Extraordinary General Meeting (EGM).
  • Fix the date, time, and venue for the EGM.

3. Issue Notice for EGM

Send a notice to all shareholders, directors, and auditors of the company, detailing the agenda to increase the authorized share capital. The notice must include:

  • Date, time, and place of the meeting.
  • Explanatory statement regarding the resolution.

4. Hold the EGM

Conduct the EGM and pass an ordinary resolution to approve the increase in authorized share capital. Ensure proper recording of minutes for compliance.

5. File Forms with the Registrar of Companies (RoC)

After passing the resolution, file the required forms with the RoC:

  • Form MGT-7: Annual Return (if applicable).
  • Form SH-7: Notice of alteration in share capital.

The forms must include:

  • Copy of the board resolution.
  • Copy of the shareholders' resolution.
  • Altered MOA and AOA, if amended.

6. Payment of Fees

Pay the requisite government fees and stamp duty based on the amount by which the authorized share capital is being increased.

7. Update Company Records

Once the RoC approves the application, update all statutory registers and company records to reflect the increased authorized share capital.

Key Documents Required

  • Certified copy of the board resolution.
  • Certified copy of the shareholders' resolution.
  • Altered MOA and AOA.
  • Notice and explanatory statement for the EGM.

Compliance Tips

  • Ensure timely filing of forms with the RoC to avoid penalties.
  • Verify that the increase in share capital aligns with the company's long-term financial plans.
  • Consult with a professional to ensure all legal and procedural requirements are met.

Conclusion

Increasing the authorized share capital is a straightforward process when you follow the legal requirements. It enables the company to raise funds and issue additional shares to stakeholders.

For a detailed guide on the Procedure of Increase in Authorized Share Capital of a Private Limited Company, visit our website to learn more and get professional assistance.

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