Share Capital is an amount invested by the promoters while incorporating a company. As business expands, more capital is required. The capital limit set up by the promoters as and there it becomes necessary for the company to increase its authorised capital limits.
What is Authorised share capital of a company?
Authorised share capital is the maximum limit upto which a company can issue shares to the shareholders. This limit is mentioned in the Memorandum of Association of the company under “Capital Clause”. To issue shares beyond this limit the company first has to increase the limit of Authorised Share Capital of the company.
Definition of Authorised Share Capital
Section 2(8) of the Companies Act, 2013 defines the term authorised capital or nominal capital. It means auch capital as is authorised by the memorandum of association to be the maximum amount of share capital of the company.
Legal requirements
Section 61 of the Companies Act, 2013
Section 61 of the Companies Act, 2013, empower limited companies to alter its share capital.
A limited company having share capital may increase its authorised share capital only if it is so authorised by the Articles of Association of the company. Such alteration shall be approved in the general meeting by the members by passing an Ordinary Resolution. [Section 61(1)(a)]
Therefore it is now clear that a company can increase the authorised share capital only if it is permitted by Articles of Association of the company. If Articles do not contain such provision then the company should first alter its Articles of Association.
Procedure for increase in the authorised share capital of the company
Check the Articles of Association of the Company
Check whether the Articles of Association of the company contain the provision for authorising increase in the Authorised Share Capital of the company. If no provision is specified, then take necessary steps to alter the Articles to include the said provision.
Convene a Board Meeting
The next step is convening a Board Meeting to approve an increase in authorised capital by the Board of Directors and issue Notice for calling and holding Extraordinary General Meeting of the members of the company.
- Issue Notice of Board Meeting along with agenda and draft resolution, to every Director of the company, at their address registered with the company atleast 7 days before the date of Board Meeting.
- Hold a Board Meeting and pass resolutions for
a. To consider and approve increase in the authorised share capital of the company and amendment in the Memorandum and Articles of Association of the company, subject to approval by members in the general meeting.
b. Fixing day, date, time and venue for holding general meeting.
c. approve Notice of General Meeting along with explanatory statement as required under Section 102 of the Companies Act, 2013
d. Authorise any director or company Secretary to take necessary action to issue Notice of Extra Ordinary General Meeting to the members. The Noice of EGM shall be sent alongwith the explanatory statement and Draft copy of Ordinary Resolution required to be passed at the general meeting.
e. As per Regulation 30 & 46(3) of the SEBI (LODR) Regulations, 2015 every Listed Company shall submit the disclosure of Board Meeting within 24 hours from the conclusion of the Board Meeting and post the same on the website of the Company within 2 working days.
f. Prepare and circulate draft Board Meeting Minutes within 15 days from the conclusion of the meeting by hand/speed post/courier/registered post/email to every Director for their comments.
Convene a General Meeting
a. Notice of General Meeting alongwith Explanatory Statement as required under Section 102 and Draft copy of Ordinary Resolution shall be sent to every member of the company atleast 21 clear days before the date of General Meeting. The Notice shall be sent via Registered Post or Speed Post or Email or any other electronic mode to the registered address or email address of every member.
Meeting can also be called at a shorter Notice if consent is obtained either in writing or via electronic mode from members holding not less than 95% of such part of the paid-up share capital of the company as gives a right to vote at the meeting.[Section 101 of the Companies Act, 2013]
Apart from members the Notice of EOGM shall be sent to every Director, Auditors of the Company, Secretarial Auditors, Debenture Trustee and any other person who are entitled to receive notice of the general meeting. Notice shall clearly specify the day, date, time and complete address alongwith location Map of the venue of the Meeting.
b. Hold General Meeting with requisite quorum on the decided date and pass an Ordinary Resolution for Increase in Authorised Share Capital of the Company and Change in the Capital Clause of the Memorandum of Association of the Company.
c. In case of Listed entities:
- Inform the Stock Exchange(s) where shares of the Company are listed within 24 hours of the conclusion of the general meeting, the proceedings of the meeting and publish the same on the website of the company within 2 working days [Regulation 30 and 46(3) of the SEBI (LODR) Regulations, 2015]
- Submit to the Stock Exchange the voting results of the meeting within 2 working days of the conclusion of the meeting and publish the same on the website of the company. [Regulation 44 of the SEBi (LODR) Regulations, 2015]
- Prepare the draft minutes of the General Meeting, and get them signed as per the requirements of the Companies Act, 2013 and Secretarial Standard- 2 (SS-2).
File Form SH-7 with Registrar of Companies
Notice of Alteration of Share Capital with the Registrar of Companies within 30 days from the date of passing Ordinary Resolution alongwith prescribed Fees.
Documents Required for Filing Form SH-7
- Certified Copy of Ordinary Resolution for increase in authorized capital of the company.
- Altered copy of Memorandum of Association (MOA) of the Company
- Copy of altered Articles of Association (AOA), if any
- Shorter Notice Consent if the meeting was held at shorter notice
- Any other document as may be applicable.
Payment of Stamp Duty and MOA Registration Fees for Increase in Authorised Share Capital
The Rate of Stamp Duty payable for increase in authorised share capital of the company shall be determined based on the state where the Registered Office of the company is situated. MCA has provided a detailed chart of e-stamp duty rates.
Table of MOA Registration Fees is as under:
MCA Fees for increase in authorised Capital
The payment of stamp duty and MOA Registration Fees shall be made through MCA portal.
Post increase in Authoruised Share Capital of the Company, it is important to change every copy of MOA and AOA of the company.
Every Listed company shall submit the altered copy of MOA and AOA to the stock exchange within 24 hours of filing Form SH-7 with the Registrar of Companies and make it available on the company website within 2 working days [Regulation 30 and 46(3) of the SEBI (LODR) Regulation, 2015]
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