Company Authorized Capital Increase
What is Authorized Capital?
Authorized capital, as defined by Section 2 (8) of the Companies Act, 2013, refers to the maximum amount of share capital a company is authorized to issue according to its Memorandum of Association (MOA). It represents the ceiling on the total value of shares a company can issue to shareholders.
Authorized vs. Paid-Up Capital
- Authorized Capital:
- Paid-Up Capital:
- The total potential value of shares a company is permitted to issue.
- The actual value of shares that have been fully issued, subscribed, and paid for by shareholders.
A company’s paid-up capital cannot exceed its authorized capital. If a company’s paid-up capital reaches the authorized capital limit and it wishes to issue more shares, it must either increase its authorized capital or facilitate the transfer of shares from existing shareholders.
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Company Authorized Capital Increase
Increasing Authorized Share Capital
1. Purpose of Increasing Authorized Capital
Increasing authorized capital allows a company to:
- Raise additional funds for expansion or new projects.
- Facilitate mergers or acquisitions.
- Issue additional shares.
- Convert debt into equity.
- Meet evolving financial needs or regulatory requirements.
2. Procedure for Increasing Authorized Capital
1. Review the Articles of Association (AoA):
- Check if the AoA allows changes to authorized capital. If it does, proceed with the necessary amendments.
- If the AoA does not provide for alterations, amend the AoA to include such provisions.
2. Amend the Memorandum of Association (MOA):
- The MOA needs to be amended to reflect the increase in authorized capital.
3. Convening a Board Meeting:
- Notice:
- Resolution:
- Send a notice to all directors at least 7 days prior to the meeting.
- Pass a resolution to convene an Extraordinary General Meeting
4. Notice of EGM:
- Inform shareholders of the EGM, including the agenda, date, time, venue, and voting method.
- The notice must be issued at least 21 days in advance, though a shorter notice period is acceptable with consent from at least 95% of members.
5. Conducting the EGM:
- Presentation:
- Voting:
- Resolution:
- Present the agenda item for increasing authorized capital.
- Shareholders vote on the resolution.
- Pass the resolution to increase the authorized capital.
6. Regulatory Filings:
- Form MGT-14:
- Submit to the Registrar of Companies (RoC) within 30 days post-resolution.
- Include:
- Notice of EGM with Explanatory Statement.
- Certified copy of EGM resolution.
- Updated MOA and AOA.
- Form SH-7:
- File with the RoC within 30 days of the resolution.
- Include:
- Company information and CIN.
- Resolution type and meeting date.
- SRN of Form MGT-14.
- Details of new authorized capital and breakdown.
- Payment of stamp duty.
7. E-Stamp Duty Payment:
- Pay the e-stamp duty for the increased authorized share capital via the Ministry of Corporate Affairs (MCA) Portal.
8. Post-Increase Steps:
- Update Documents:
- Share Allotment:
- Ensure the updated MOA and AoA reflect the new authorized capital.
- Increase paid-up share capital by issuing new shares as per the increased authorized capital.
Penalties for Non-Compliance
Failure to comply with authorized capital increase procedures can result in:
- A penalty of Rs. 10,000 under Section 450 of the Companies Act, 2013.
- An additional Rs. 1,000 per day for ongoing violations.
- For late submission of Form SH-7, a penalty of Rs. 1,000 per day up to a maximum of Rs. 25 lakh.
Why Choose Munibgiri?
Munibgiri is your go-to partner for increasing authorized capital. We offer:
- Expert MOA Amendment Guidance:
- MGT-14 Filing Assistance:
- Seamless Form SH-7 Submission:
- End-to-End Support:
- Ensuring accurate reflection of new capital structure.
- Efficient handling of Form MGT-14 for regulatory compliance.
- Accurate filing of Form SH-7 to record the increase.
- Comprehensive support throughout the process.
Opt for Munibgiri to ensure a smooth, compliant, and stress-free capital increase experience, backed by expertise and dedicated service.