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Increase Authorized Capital

About Authorized Capital

Authorized capital (also known as “share capital” or “registered capital”) is the maximum amount of capital that a company is legally allowed to raise by issuing shares to shareholders, as specified in its memorandum of association or corporate charter. This amount is determined at the time of the company’s incorporation and can be increased or decreased through a formal process.

Legal Helpzyn provides professional assistance to help you increase your company’s authorized capital. Our team ensures a smooth process by guiding you through the necessary legal procedures, documentation, and shareholder approvals. With Legal Helpzyn, you can efficiently navigate the regulatory requirements and successfully raise your authorized capital to support business growth.

Key Points About Authorized Capital:

  • It is the upper limit of the capital the company can raise.
  • It is different from issued capital, which refers to the portion of authorized capital that has been sold to shareholders.
  • It does not represent the actual funds the company has raised, but rather the potential it has for raising capital.

Increase Your Company’s Authorized Capital with Legal Helpzyn

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    Companies may need to increase their authorized capital for several reasons:

    • Expansion Plans: When the company plans to expand its operations, acquire new assets, or enter new markets, it may need additional capital.
    • Stock Issuance: To issue more shares to investors for raising funds (through public offerings, private placements, etc.).
    • Debt to Equity Conversion: To issue shares in exchange for debt or convert loans into equity.
    • Mergers and Acquisitions: If a company is acquiring another company or merging, more capital might be needed to facilitate the transaction.
    • Employee Stock Option Plans (ESOPs):
      Companies offering stock options to employees may need to increase their registered capital to accommodate the issuance of shares for such plans.

    Impact on Company Structure:

    • Ownership Dilution: If new shares are issued, it could lead to the dilution of existing shareholders' ownership unless they have the right to purchase additional shares (e.g., through a rights issue).
    • Increased Flexibility: The company now has more authorized shares to issue for future financing needs, acquisitions, or other strategic purposes.

    Impact on Financial Statements:

    • No immediate change in paid-up capital: The increase in authorized capital doesn't change the company's actual financial standing unless the company issues and sells the new shares.
    • More capital for expansion: The authorized capital increase could potentially support the company’s future growth through stock issuance.
    • Company’s Articles of Association (AOA): The company's AOA may have provisions about the process of increasing authorized capital. These provisions need to be followed for a valid increase.
    • Regulatory Compliance: Companies must ensure that all necessary filings are made with regulatory bodies, such as the Securities and Exchange Commission (SEC) or the relevant Registrar of Companies.
    • Capital Adequacy: If the company is a financial institution or a regulated company, increasing authorized capital may require meeting specific capital adequacy or solvency ratios set by regulatory authorities.

    Process of Increasing Authorized Capital

    • The first step is for the Board of Directors to propose and approve a resolution to increase the authorized capital. This will be done through a formal meeting.
    • A special resolution may be required depending on the company’s articles of association and local laws.
    • Shareholders must approve the increase in authorized capital through a general meeting (often an extraordinary general meeting or EGM). A special resolution (typically requiring a 75% majority) is passed by shareholders.
    • Notice of the meeting and a detailed explanation about the proposed increase in capital must be given to the shareholders.
    • Once the increase is approved by shareholders, the company must file necessary forms with the Registrar of Companies (RoC) or any relevant regulatory body.
    • Corporate filings include updated versions of the Memorandum of Association (MOA) and Articles of Association (AOA) to reflect the increased capital.
    • In some jurisdictions, there might be specific filings or paperwork required, such as Form SH-7 in India.

    Depending on the jurisdiction, there might be government or regulatory fees that must be paid for the approval of the increased capital.

    • After the authorized capital has been increased, the company can issue new shares to raise funds. This may include issuing new shares to existing shareholders or third-party investors.
    • The process of issuing shares may involve setting a price, determining the method of issuance (e.g., rights issue, public offering), and completing the necessary share allotments.

    How we work

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    Fill the form & pay the required charges.

    2

    Receive a call from our CA experts

    3

    Upload the documents as per the request

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    Before filing the application with the authority, our CA will obtain your approval.

    5

    "Congratulations! The ROC formalities have been successfully completed."

    Frequently Asked Questions (FAQs)

    Companies generally increase their authorized capital for:

    • Raising additional funds through new shares issuance.
    • Acquiring assets, expanding operations, or funding other business requirements.
    • Converting debt into equity.
    • Issuing shares for employee stock option plans (ESOPs) or mergers and acquisitions.
    • The maximum amount a company can raise through shares is determined at its inception and can be altered through a formal procedure.
    • Issued capital refers to the portion of the total share capital that the company has already distributed to shareholders.

    The process includes several steps:

    • Board Resolution: The Board of Directors must first approve the proposal to raise the company’s registered capital.
    • Shareholder Approval: The shareholders must approve the increase in registered capital through a special resolution passed at a general meeting, typically an Extraordinary General Meeting.
    • Amendment of Memorandum of Association (MOA): After approval, the MOA must be amended to reflect the increased capital. This requires filing the updated document with the Registrar of Companies (RoC).
    • Filing with RoC: File relevant forms with the RoC, such as Form SH-7 (for alteration of capital) and Form MGT-14 (for the resolution).

    A special resolution is a decision passed by a majority of at least three-fourths (75%) of the shareholders voting in favor at a general meeting. This is required to raise the company’s registered capital.

    The process for increasing authorized capital is governed by the Companies Act, 2013, specifically under:

    • Section 61: Power of the company to alter its share capital.
    • Section 13: Procedure for altering the Memorandum of Association (MOA).
    • Section 42: Offers and issuance of shares.

    Yes, if the Articles of Association (AOA) impose any restrictions on the registered capital or its increase, they must be amended to reflect the new limits after the change.

    1. After obtaining shareholder approval, the company must file the following forms with the RoC:
      • Form SH-7: For the alteration of share capital.
      • Form MGT-14: To file the special resolution.
    2. These forms must be filed within 30 days of passing the special resolution.

    Yes, the company must pay a filing fee to the RoC for submitting forms like SH-7 and MGT-14, with the fee determined by the amount of the increased registered capital.

    Increasing registered capital does not automatically raise the paid-up capital. Paid-up capital increases only when new shares are issued and fully paid by shareholders.

    Yes, a company can raise its registered capital multiple times as needed. However, each increase requires approval via a special resolution, filing with the RoC, and updating the MOA.

    There is no direct restriction on increasing authorized capital, but it must be approved by the shareholders and comply with legal procedures. Additionally, the company must ensure that its total capital does not exceed the limits specified by any regulatory or statutory authority (if applicable).

    Once approved and filed, the increase in authorized capital is permanent unless the company decides to reduce it in the future through a special resolution, following similar steps as increasing it.

    If the company issues additional shares as part of the increase, it could affect the shareholding pattern. Existing shareholders may face dilution unless they are given the option to purchase additional shares.

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