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, it 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.
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.
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.
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:
The following attachments are to be provided:
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 be filed on the MCA portal, with the following details:
The following attachments are to be provided:
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