Increase Authorised Share Capital: A Step-by-Step Guide

As your business grows, so does the need for additional capital. One of the most effective ways to raise additional funding or issue more shares to new investors is by increasing the Authorised Share Capital of your company. But what exactly does that mean, and how do you go about doing it?

In this blog post, we’ll break down the process, legal requirements, and key considerations for increasing your authorised share capital in a clear and practical way.

What Is Authorised Share Capital?

Authorised Share Capital (also known as nominal capital) refers to the maximum amount of share capital that a company is legally allowed to issue to shareholders. This limit is set out in the company’s Memorandum of Association or Articles of Association.

Example:

If your company has an authorised share capital of ₹10 lakhs, divided into 1,00,000 equity shares of ₹10 each, you can only issue up to 1,00,000 shares unless the authorised capital is increased.

Why Might a Company Need to Increase It?

There are several reasons why a company may need to increase its authorised share capital, including:

• Raising additional funds from investors

• Issuing bonus shares to existing shareholders

• Expanding operations or acquiring assets

• Complying with regulatory requirements before an IPO or funding round

Legal Provisions and Compliance

In India, increasing authorised share capital is governed by the Companies Act, 2013 and the rules made thereunder. The company must comply with the legal procedure, including amendments to the company’s constitutional documents.

Step-by-Step Process to Increase Authorised Share Capital

Here’s a simplified guide to help you through the process:

1. Check Articles of Association (AoA)

Ensure that your company’s Articles of Association permit an increase in authorised capital. If not, amend the AoA through a special resolution before proceeding.

2. Hold a Board Meeting

Pass a board resolution to:

• Approve the proposal to increase authorised share capital

• Call an Extraordinary General Meeting (EGM) to get shareholders’ approval

3. Issue Notice of EGM

Send notice to all shareholders at least 21 days before the EGM, specifying the agenda and proposed resolution.

4. Conduct the EGM

At the EGM, pass an ordinary resolution to approve the increase in authorised share capital.

5. File Required Forms with ROC

Within 30 days of passing the resolution, file the following documents with the Registrar of Companies (ROC):

• Form SH-7: Notice of alteration in share capital

• Certified true copy of the resolution

• Altered Memorandum of Association (MoA) (if applicable)

• Altered Articles of Association (AoA) (if applicable)

• Prescribed fee based on the increase

6. Receive ROC Approval

Once the ROC approves your filing, your company’s authorised share capital will be officially increased and reflected in the corporate records.

Key Considerations

• Cost: Additional fees must be paid to the ROC based on the amount of the increase.

• Tax Implications: There are no direct tax liabilities for increasing authorised capital, but further share allotments may have tax consequences.

• Timelines: The process can typically be completed within 7–15 business days if documentation is in order.

Conclusion

Increasing your authorised share capital is a crucial step in scaling your business and attracting investment. While the process involves compliance with legal formalities, it is relatively straightforward with proper planning and documentation.

If you’re unsure about the steps or want to ensure compliance, it’s wise to consult a legal or financial expert. With the right guidance, you can smoothly navigate the process and position your company for future growth.