Introduction
Authorized capital refers to the maximum amount of capital that a company is authorized to issue to its shareholders. It represents the upper limit of funds that a company can raise through the issuance of shares. Increasing the authorized capital of a company is a strategic move undertaken to facilitate expansion, fund growth initiatives, or accommodate future capital requirements. In India, the process for increasing authorized capital is governed by the provisions of the Companies Act, 2013, and the rules prescribed thereunder.
Key Procedures for Increasing Authorized Capital
Board Resolution
-
The Board of Directors must convene a board meeting to approve the proposal for increasing the authorized capital of the company.
-
Pass a resolution approving the increase in authorized capital and authorizing a director or company secretary to file necessary forms with the Registrar of Companies (RoC).
Shareholder Approval
-
Hold a general meeting of shareholders and pass a special resolution approving the increase in authorized capital.
-
Prepare and circulate a notice of the general meeting, along with explanatory statements and relevant documents, to all shareholders at least 21 days before the meeting date.
Amendment of Memorandum of Association (MoA)
-
Prepare a draft of the amended Memorandum of Association (MoA) reflecting the proposed increase in authorized capital.
-
Submit the amended MoA to the RoC along with the requisite forms and documents for approval.
Payment of Fees and Stamp Duty
-
Pay the prescribed fees for filing the necessary forms with the RoC for amendment of MoA and increase in authorized capital.
-
Stamp the amended MoA as per the stamp duty regulations applicable in the concerned state.
Filing with Registrar of Companies (RoC)
-
Prepare and file the necessary forms with the RoC for amendment of MoA (Form INC-27) and increase in authorized capital (Form SH-7).
-
Submit the requisite documents, including the board resolution, special resolution, amended MoA, and proof of payment of fees and stamp duty, along with the forms.
Confirmation from RoC
-
After verifying the application and documents, the RoC will approve the increase in authorized capital and issue a fresh Certificate of Incorporation with the updated MoA.
-
Update the company's records and maintain accurate records of the increased authorized capital.
Intimation to Other Authorities
-
Inform other authorities such as the Income Tax Department, Goods and Services Tax (GST) Department, banks, regulatory authorities, and any other relevant stakeholders about the increase in authorized capital.
-
Update the authorized capital details in company stationery, website, and other official documents to reflect the updated information.
Penalties for Non-Compliance
Failure to comply with the procedures for increasing authorized capital or filing incorrect information with the RoC can attract penalties and consequences, including:
01
Imposition of fines and penalties by the RoC for non-compliance with statutory requirements.
02
Delay or rejection of the application for increasing authorized capital.
03
Invalidation of legal notices and correspondence sent to shareholders and stakeholders regarding the increased authorized capital.
​Conclusion
Increasing the authorized capital of a company in India requires adherence to statutory procedures and compliance with regulatory requirements. By following the prescribed steps, maintaining accurate records, and filing necessary forms with the RoC within the stipulated timelines, companies can facilitate expansion and growth initiatives effectively. It is essential for companies to seek professional advice and assistance from qualified professionals such as Professional Munim, Company Secretaries, Chartered Accountants, and Legal Advisors to navigate the complexities of increasing authorized capital and mitigate risks associated with non-compliance.