Increase in authorised capital

A company cannot issue shares for more than the value of the authorised capital. To issue more than authorised capital the authorised capital is required to be increase.

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Increase in authorised capital

The maximum amount of share that a company is allowed to issue is called Authorised Share Capital. A company can issue the full authorised capital or issue only a part of it. So, authorised capital is the limit beyond which a company cannot issue shares. The registration of the amount of Authorised Share Capital is to be made with registrar of Companies

Difference between Paid-up and Authorised Share Capital

  • Authorised Share Capital is the maximum amount of capital a company can issue. Paid-up capital is the share capital actually issued and paid by the shareholders

  • The minimum amount of authorised share capital is ₹1 lakh while as per the Companies Amendment Act, 2015 there is no provision regarding minimum Paid-up Share Capital

  • Authorised Share Capital is to be mentioned in Memorandum of Association. But Paid-up Capital is not mandatory to be mentioned

  • Authorised Share Capital can be raised with the permission of Registrar of Companies but Paid-up capital cannot be more than the amount of Authorised Share Capital

 

So, if a company has an Authorised share capital of ₹5 lakh then Paid-up Capital has to be less than ₹5 lakh. Companies are allowed to raise the Authorised Share Capital with the authorisation of Registrar of companies by paying the fees for such change

Process for increase in Authorised Share Capital

In order to increase the limit of Authorised Share Capital, a company has to take permission of Registrar of Companies. The procedure of increasing Authorised Share Capital is

 

1. Verification of Articles of Association

Before proceeding with regulations specified under Companies Act, 2013 the company has to make sure that provisions for increase in Authorised Share Capital is specified in AOA. If not, then changes has to be made 

2. Commencement of Board Meeting

Directors should approve the proposal for increasing Authorised Share Capital in a Board Meeting. With the approval of Board of Directors, Extra-Ordinary General Meeting should be fixed at a particular time and date. The Extra-ordinary meeting is held to obtain the approval of Shareholders of the Company

 

3. Extra- Ordinary General Meeting

A notice about commencement of EGM has to be sent to every shareholder, Director and Auditor of the company. On the date, time and place mentioned in the Notice of Extra- ordinary meeting, Shareholders approval has to be taken. An ordinary resolution has to be drawn on approval by the shareholders

 

4. Filing with Registrar of Companies

After passing Ordinary resolution at the Extra- Ordinary General Meeting, filing has to be made with the ROC within 30 days of passing the resolution. While filing, Form SH-7 has to be submitted along with prescribed government fees.

 

The documents which are to submitted are

 

  • Copy of Ordinary Resolution

  • Notice of EGM

  • Altered Memorandum of Association with higher amount of Authorised Share Capital

By verifying all the documents submitted, Registrar of Companies will approve the filing if the procedures and documents are as per the provisions mentioned in Companies Rules. Once the approval is given, new amount of Authorised Share Capital shall be effective.

Stamp duty for increase in Authorised Share Capital

Whenever a company has to increase Authorised Share Capital, stamp duty charge is to be paid. These stamp duty charges are different from state to state. In some states stamp duty is charged on certain percentage of increase in share capital made and in some a lump sum amount is charged as stamp duty

 

For example, stamp duty charged in New Delhi is 0.01% of Authorised Share Capital whereas it is ₹1000 in Telangana. These charges also vary based on the type of company

Frequently asked questions

1. Which resolution is to be passed to increase Authorised Share Capital?

An Ordinary Resolution has to be passed in the Extra-Ordinary General Meeting held for the approval of shareholders

 

2. Can Authorised Share Capital be increased?

By following all the regulations provided under Companies Act, 2013 for increase in Authorised Share Capital and approval of Registrar of Companies, Authorised Share Capital can be raised

 

3. Is there fees for increasing Authorised Share Capital?

Stamp Duty charges for increase in Share Capital differs from state to state. Depending on the ROC, some states charge stamp duty while some don’t

 

4. Is Authorised Share Capital and Paid-up Share Capital same?

Authorised Share Capital is the maximum amount a company can issue. But Paid up capital is the amount of share capital that has been issued and paid

 

5. Which form is to be filed for increase in Authorised Share Capital?

Form SH-7 has to be submitted to Registrar of Companies within 30 days of passing Ordinary Resolution in EGM for increase in Authorised Share Capital