Comprehensive Guide on Increase in Authorized or Subscribed Capital in a Company

1. Introduction

Every company incorporated in India is required to specify its Authorized Share Capital at the time of incorporation. This is the maximum limit up to which a company can issue shares to its shareholders. If a company intends to issue more shares beyond the existing limit, it must first increase its Authorized Share Capital.

2. Understanding Authorized and Subscribed Capital

• Authorized Share Capital: The maximum amount of capital that a company is legally allowed to issue as per its Memorandum of Association (MoA).
• Subscribed Share Capital: The portion of authorized capital for which shares have been issued and subscribed by shareholders.
• Paid-up Share Capital: The actual amount received by the company from shareholders against the issued shares.

3. Need for Increasing Authorized Share Capital

A company may require an increase in its authorized share capital for various reasons, including:

• Expansion of business operations
• Issuing new shares to investors
• Meeting regulatory requirements for funding
• Strengthening the company’s financial base

4. Legal Provisions Governing Increase in Authorized Share Capital

The procedure for increasing authorized share capital is governed by:

• Companies Act, 2013 (Section 61, 64)
• Companies (Share Capital and Debentures) Rules, 2014
• Articles of Association (AoA) of the company

5. Step-by-Step Procedure to Increase Authorized Share Capital

5.1 Check Articles of Association (AoA)

• The company must ensure that its AoA allows an increase in authorized share capital.
• If the AoA does not have such a provision, it must be amended first by passing a Special Resolution.

5.2 Convene a Board Meeting

• Issue a Board Meeting Notice at least 7 clear days in advance.
• Pass a Board Resolution to:
  
  • Approve the increase in authorized share capital.
  • Fix the date, time, and venue for holding an Extraordinary General Meeting (EGM).
  • Authorize a director or company secretary to handle regulatory filings.

5.3 Convene an Extraordinary General Meeting (EGM)

• Issue a Notice of EGM along with an Explanatory Statement under Section 102 of the Companies Act, 2013.
• Pass an Ordinary Resolution to approve the increase in authorized share capital.
• Prepare and maintain Minutes of the Meeting.

5.4 Filing with the Registrar of Companies (ROC)

• File Form SH-7 within 30 days from the date of passing the resolution.
• Attachments for Form SH-7:
  
  • Certified copy of the Ordinary Resolution.
  • Updated Articles of Association (if amended).
  • Payment of Stamp Duty as per the Indian Stamp Act.

5.5 Post-Approval Compliance

• The Registrar of Companies (ROC) will review and approve the application.
• Upon approval, the Master Data of the company on the MCA portal will be updated to reflect the increased authorized share capital.

6. Example Case Study

XYZ Pvt Ltd., incorporated with an authorized capital of INR 10 lakh, plans to raise additional funds from investors. The company follows the legal process, holds an EGM, passes the required resolutions, and files Form SH-7 with ROC. Post-approval, the company successfully increases its authorized capital to INR 50 lakh, enabling it to issue more shares.

7. Key Considerations

• Timely Compliance: Form SH-7 must be filed within 30 days of passing the resolution.
• Stamp Duty Payment: The amount varies across states and must be calculated accordingly.
• Correct Documentation: Ensure all resolutions, notices, and minutes are properly documented.

8. Conclusion

Increasing the authorized share capital allows companies to expand their financial capacity and attract new investments. Proper adherence to the Companies Act, 2013, along with timely regulatory filings, ensures smooth implementation of this process.

For professional assistance, reach out to us on email: info@returnfilings.com or on whatsapp: https://wa.me/919910123091 to ensure all statutory obligations are met on time.

9. Additional Resources

For further reading, explore the following topics:

• Compliances for a Private Limited Company in India.
• Amendment / alteration in Memorandum of Association (MoA) or Articles of Association (AoA).
• Step-by-step process for Company name change.
• Shareholder Agreement: Key Clauses, Legal Requirements, and Drafting Guide.

Frequently Asked questions (FAQs) on Increase in Authorized or Subscribed Capital

General Information about Share Capital

1.       What is authorized capital?

Authorized capital (also known as nominal capital) is the maximum amount of share capital that a company is authorized to issue, as stated in its Memorandum of Association (MoA). It’s the ceiling on the amount of capital the company can raise by issuing shares.  

2.       What is subscribed capital?

Subscribed capital is the portion of the authorized capital that the company has actually issued to shareholders. It represents the amount of capital that has been subscribed for by investors. It cannot exceed the authorized capital.  

3.       What is paid-up capital?

Paid-up capital is the portion of the subscribed capital for which the shareholders have actually paid the company. It’s the amount of money the company has received from the issuance of shares.  

4.       Why would a company increase its authorized capital?

A company might increase its authorized capital to: Raise additional funds for expansion or new projects. Issue shares to employees (ESOPs). Facilitate mergers and acquisitions. Provide flexibility for future capital raising.  

5.       Why would a company increase its subscribed capital?

A company increases its subscribed capital when it issues new shares to investors, thereby increasing the amount of capital it has raised. This often happens when the company needs funding.

Increasing Authorized Capital

6.       How is authorized capital increased?

Increasing authorized capital requires: Altering the MoA by passing a special resolution at a general meeting of shareholders. Filing Form SH-7 with the Registrar of Companies (ROC) within 30 days of the resolution. Paying the prescribed fees to the ROC.  

7.       What documents are required for increasing authorized capital?

Documents typically include: Notice of the general meeting. Special resolution passed by the shareholders. Altered MoA.

8.       What is the fee for increasing authorized capital?

The fee is prescribed by the Ministry of Corporate Affairs (MCA) and depends on the amount of the increase.

9.       How long does it take to increase authorized capital?

The process can take a few weeks, depending on the ROC’s processing time.

Increasing Subscribed Capital

10.   How is subscribed capital increased?

Subscribed capital is increased by issuing new shares. This can be done through: Further issue of shares to existing shareholders (rights issue). Issue of shares to new investors (public issue or private placement). Issue of shares to employees (ESOPs).  

11.   What is the process for increasing subscribed capital?

The process varies depending on the type of share issue, but generally involves: Passing a resolution by the board of directors. Offering shares to existing shareholders (in case of a rights issue). Allotting shares to new investors (in case of a public issue or private placement). Filing the necessary forms (e.g., PAS-3) with the ROC.  

12.   What forms are required for increasing subscribed capital?

Key forms include: PAS-3: Return of allotment.  

13.   When should the forms for increasing subscribed capital be filed?

The forms should be filed with the ROC within 30 days of the allotment of shares.

Other Considerations

14.   What are the implications of increasing share capital?

Increasing share capital can: Dilute the ownership of existing shareholders. Affect the company’s earnings per share (EPS). Increase the company’s borrowing capacity.  

15.   Can a company issue shares at a premium?

Yes, a company can issue shares at a premium (i.e., at a price higher than the face value).  

16.   What are the regulations regarding the issue of shares to foreign investors?

The issue of shares to foreign investors is subject to Foreign Exchange Management Act (FEMA) regulations and may require approvals from the Reserve Bank of India (RBI).

Other generally asked questions related to Increase in Authorised or Subscribed Capital

17.   How do I calculate the amount of authorized capital?

The authorized capital is stated in the company’s MoA.  

18.   What is the difference between equity share capital and preference share capital?

Equity share capital represents ownership in the company, while preference share capital carries preferential rights regarding dividends and repayment.  

19.   How do I issue shares to employees under ESOPs?

ESOPs are governed by specific regulations, and the company needs to have an ESOP scheme in place.  

20.   What is a rights issue?

A rights issue is an offer to existing shareholders to subscribe to new shares in proportion to their existing shareholding.  

21.   What is a private placement?

A private placement is an issue of shares to a select group of investors, not to the public.  

22.   What is a public issue (IPO)?

A public issue (Initial Public Offering) is an offer of shares to the general public for the first time.  

23.   How do I update the company’s register of members after issuing new shares?

The register of members needs to be updated to reflect the new share allotments.

24.   What are the tax implications of issuing new shares?

Consult a tax professional for specific advice.

25.   How can I find information about the share capital of a company?

This information is available on the MCA website.

26.   Where can I find the latest MCA notifications and circulars related to share capital?

The MCA website is the official source for notifications and circulars.