As per Section 2(8) of the Companies Act, the authorized share capital is referred to the capital that is authorized by the memorandum of a company to be the maximum amount of share capital of the company. We can say that the maximum amount in which we can raise the capital of the company.
Authorized share capital may be divided into:
- Issued Capital is that category of capital that a company grants from time to time.
- Paid-up Capital is the amount the company receives from the shareholders in exchange for the shares issued.
- Subscribe Capital is sponsored by the members of the company.
The Authorized Share Capital is provided in Memorandum of Association of the Company under clause V.
Reasons for Increasing Authorized Share Capital
A company might increase its authorized capital for several reasons, including:
- Financial Needs
- New business initiatives funding
- Facilitating acquisitions and mergers and insinuating capital as part of a restructuring plan
- Issuing additional shares
- Converting debt into equity
- Meeting regulatory requirements, if applicable
Procedure to Increase or Enhance the Authorized Share Capital of the Company
1. Authorization in Articles of Association:
Firstly, we have to check the Article of Association to see whether there is a provision related to the expansion of the authorized Share capital. If there is no provision related to the expansion of authorized Share capital, then we have to amend the Articles first.
2. Convene a Board Meeting for Increase in Authorized Capital
- Notice of Board Meeting will be given to all the Directors with agenda of Board Meeting at least 7 days in advance to their registered address or by way of e-mail.
- Convey the Board meeting and pass the following resolutions:
i. To Increase the Authorized Share Capital of the company subject to the approval of Shareholders in the Extraordinary General Meeting.
ii. For approving the notice of Extraordinary General Meeting and fix the date, time, and Venue to call the Extraordinary General Meeting.
iii. To authorize the director/ company secretary to issue a notice of the Extraordinary General Meeting as approved by the board.
c. Notice of the Extraordinary General Meeting to be issued to all the members, directors and the auditors of the company under the provisions of the Companies Act.
3. Convene an Extraordinary General Meeting for Increase in Authorized Capital
Hold the Extraordinary General Meeting on the due date and pass the ordinary resolution by the shareholders of the company to increase the authorized share capital of the company.
4. Make the relevant changes to the Capital Clause of the Memorandum of Association of the company.
5. ROC Filing E-Form SH-7
i. Filing of E-Form SH-7 with the linked E-Form INC 33 i.e. Memorandum of Association within 30 days from the date of passing the ordinary resolution at the Extraordinary General Meeting.
E-Form SH-7 consists of the following attachments:
- EGM Resolution.
- Notice of EGM along with Explanatory statements.
- Altered Memorandum of Association.
- Additional Documents, if any
Linked E-Form INC 33 i.e. Memorandum of Association consists of the Subscriber sheet of the company.
ii. After uploading the requisite forms make the payment of E-Form SH-7 and Stamp duty on the Ministry of Corporate Affairs, V3 Portal.
iii. Once the payment is successful, the Ministry of Corporate Affairs will approve the forms and changes related to the increase in Authorized Capital will affect the MCA Portal.
6. Payment of stamp duty
A company has to pay stamp duty on increase in its authorized capital and stamp duty has to be paid on increase in authorized capital. It is calculated as a percentage of the authorized capital increase. Based on the state where the company is incorporated, the percentage varies.
For Example,
| S.No. |
Name of State/ Union Territory |
Amount in Rupees SH-7 |
| 1. |
Delhi (Companies Having Share Capital Other Than Section 8) |
Stamp Duty Shall Be: 0.15% Of Amount of Increase In Authorised Capital Subject To Maximum of Rs. 25 Lakhs. |
| 2. |
Maharashtra (Companies Having Share Capital Other Than Section 8) |
Stamp Duty Shall Be Rs. 1000 On Every Rs.5 Lakhs of Amount of Increase In Authorized Capital Or Part Thereof Subject to A Maximum Of 50 Lakhs Of Stamp Duty.
However, when there is an increase of authorized capital beyond Rs. 2,50,00,00,000/-, No Stamp Duty Shall Be Payable |
Penalties for Non-Compliance with Authorized Capital Increase Procedures
Sections 61 and 65 of the Companies Act, 2013 relate to increasing authorized capital which doesn’t specify any penalty. Section 450 of the Companies Act, 2013 addresses penalties for general non-compliance.
- When a company is unable to adhere to the prescribed rules, a penalty of Rs. 10,000 is imposed.
- In addition, a daily penalty of thousand rupees is imposed for ongoing violations till the time the issue is resolved subjecting to a maximum of fifty thousand rupees in case of officer in default or some other person and two lakh rupees in case of a company.
Thank you for getting in touch! 
