Empowering Your Growth: A Guide to Increasing Authorized Share Capital

In the dynamic landscape of business, the need for additional funds to propel growth is a constant. For Private Limited Companies, the avenue to secure more capital lies in increasing the authorized share capital. Governed by the Company Act, this process involves a series of steps to ensure compliance with regulatory norms.

Understanding Authorized Capital: Authorized Capital, as per Section 2(8) of the Companies Act, 2013, refers to the maximum value of the share capital authorized by the company's memorandum. It sets the limit for a company's expansion, and when the need arises, increasing this limit becomes imperative to infuse additional funds.

Why Increase Authorized Share Capital? A company may consider increasing its authorized share capital before issuing new equity shares or expanding its paid-up capital. The paid-up capital is the value of issued shares, and it cannot surpass the authorized capital. Increasing the authorized share capital provides the flexibility to:

• Issue new shares.
• Transfer shares from existing shareholders to new ones.

Steps to Increase Authorized Share Capital:

• Review Articles of Association (AOA): Ensure the AOA has provisions for increasing authorized share capital. If not, amendments to the AOA may be required.
• Convene a Board Meeting: Issue notices to convene a Board meeting to seek approval for increasing the authorized share capital.
• Extraordinary General Meeting (EGM): Fix a date for an EGM to obtain shareholder approval for the increase. Shareholders pass an ordinary resolution for this purpose.
• File ROC Forms: File Form SH7 within 30 days of passing the ordinary resolution. Pay the prescribed government fee and attach documents, including notice of EGM, the authorized true copy of the resolution, and the changed Memorandum of Association.
• Approval and Implementation: Once the procedure aligns with statutory regulations, the registrar approves the filing, and the increased authorized share capital is reflected on the MCA portal.
• Allotment of Shares: With the increased authorized share capital, the company can augment its paid-up share capital by issuing new equity shares.

Conclusion: Increasing authorized share capital is a strategic move for businesses aiming to scale operations. By adhering to the Companies Act and Rules, companies can smoothly navigate this process, securing the financial flexibility needed for sustained growth.