When a company is in its incorporation stages, one of the most important decisions that have to be made by the promoters is the amount of capital to invest in the company.

As the business begins to pick up, the company may look to expand its operations, expand in size, scale or structure. To make that dream a reality, may require the pumping in of more funds into the company, basically increasing the share capital of the company. Sometimes, the amount of capital required might surpass the limit of the authorised capital at the time. The authorised capital is the maximum amount of capital for which the Company can issue shares to the shareholders.

As per Section 2(8) of the Companies Act, 2013, the Authorised Capital limit is specified in the Memorandum of Association under the Capital Clause. A company may take the necessary steps required to increase the authorised capital limit in order to issue more shares, but it cannot issue shares exceeding the authorised capital limit in any case.

Procedure to Change the Authorised Capital

Perform a read-through of the Articles of Association

The Articles of Association is the document that contains the rules and regulations regarding the internal working of the company. So, before any action can be taken regarding the increase/reduction in the authorised capital, the Articles of Association must be verified to check whether a provision exists that allows for a change in the authorised capital of the company.

If the provision exists, then the process becomes simplified. However, if the provision does not exist, then the Articles of Association must be amended first as set out under Section 14 of the Companies Act, 2013 (“Act”), and then only can the company proceed with the alteration of authorised capital.

Board Meeting to be conducted

• Notice to be sent to the directors regarding the agenda of the meeting at least 7 days prior to their respective registered addresses.
• At the Board Meeting, pass a Board Resolution to call for an Extraordinary General Meeting and issue notice pursuant to the provision of Section 101 of the Act, where the altered clause on authorised capital in the Memorandum of Association can be presented for approval by passing an Ordinary Resolution. The proposed amendment shall be in accordance with the provisions as set out under Section 60 of the Act.
• Notice to be given to the shareholders regarding the particulars of the meeting, including the agenda, date, time and place of the meeting.
• The notice must specify the method of voting to be adopted for the passing of the resolution at the Extraordinary General Meeting.
• Notice of the Extraordinary General Meeting is to be issued to all of the following:-
  
  • Directors
  • Shareholders
  • Auditors
• The notice of the EGM has to be given not less than 21 days prior to the date on which the EGM is to be held. However, a shorter notice period can be given if and only if the consent is given by not less than 95% of the members who are entitled to vote at the meeting. The consent has to be obtained either through:
  
  • Writing
  • Electronic mode

Holding the Extraordinary General Meeting

Once the meeting is in session, the matter of the increase in the share capital is presented forth. Voting then takes place in a predetermined manner to come to a conclusion regarding the matter. Once the approval has been obtained, and the resolution is passed, the explanatory statement to the same is attached, and the increase in the Authorised Capital is made.

Filing with the Registrar of Companies

In less than 30 days of the resolution being passed, a company must file eForm SH-7 and eForm MGT – 14 (if applicable) along with the prescribed fees with the Registrar.

1. Form MGT – 14: This form has to be filed with the RoC first within 30 days of passing the respective resolution. The form is to be filed on the MCA portal, with the following details:

• Details of the company, including its CIN.
• Purpose concerning which the form is being filed.
• Date of dispatch of the notice.
• Date of passing the resolution.
• Details regarding the resolution.
• Digital Signatures and DINs wherever necessary.

The following attachments are to be provided:

• Notice of the EGM along with the Explanatory Statement as per Section 102.
• Certified copy of the resolution passed in the EGM.
• Copy of the new MOA (change made in the Capital Clause).
• Copy of the new AOA (provision for the increase in authorised share capital).

2. Form SH – 7: This form has to be filed with the RoC within 30 days of passing the respective resolution. The objective of this form is to intimate the Registrar regarding the details of the increase in the authorised capital. The form is being filed on the MCA portal, with the following details:

• Details of the company, including its CIN.
• Type of resolution.
• Date of the meeting.
• Service Request Number (SRN) of Form MGT – 14 already filed.
• Details regarding the amount of original authorised share capital and the amount of new authorised share capital.
• Details regarding the breakup of the additional share capital.
• Particulars regarding the Stamp Duty Fees paid.
• Digital Signatures and DINs wherever necessary.

The following attachments are to be provided:

• A certified true copy of the resolution for the alteration of capital.
• Copy of the new MOA (change made in the Capital Clause).
• Copy of the new AOA (in case of alteration to include provision for the increase in authorised share capital).
• Any other optional attachment, if any. The forms must be submitted within the time period stipulated in order to avoid any penalties or subsequent punishment wherein the company as well its officers will be held liable.