Procedure to Increase Authorized Share Capital of Pvt ltd Co

Increase in authorised capital of a Private Limited Company in India

Increasing the Authorised Share Capital of a Private Limited Company in India their is No approval from the Central Government is needed. And Government fees depend on the amount of increase in authorised capital. Moreover Delay in filing SH-7 may attract penalties.

Reasons for Increasing Authorized Share Capital of a Pvt Co. 

Reasons for Increasing Authorised Share Capital

• A company may decide to increase its authorised capital for several strategic and financial reasons, such as
  • Addressing significant financial needs
  • Funding new business initiatives
  • Facilitating mergers or acquisitions and restructuring plans
  • Issuing additional shares for fundraising
  • Converting debt into equity\
  • Meeting regulatory requirements, if applicable

Documents Required for Authorised Share Capital Increase

The company must submit the required documents within 30 days after obtaining shareholder approval.  Mandatory Documents for Filing with ROC are as follows :

• Form SH-7 (for updating the authorised capital with the Registrar of Companies)
• Latest amended version of the Memorandum of Association (MoA)
• Revised AoA (if changes were made)
• Certified copy of the Ordinary Resolution passed by shareholders

Note: For private companies, Form MGT-14 is not required for increasing authorised capital.

Procedure to Increase Authorized Share Capital

Increasing a company’s authorized share capital involves multiple steps, ensuring regulatory compliance and securing shareholder approval. Below is a detailed guide to the process.

Increasing the authorized share capital of a private limited company in India involves the following steps:

• Check Articles of Association (AOA) :
  • Check for Existing Provisions: If the AoA permits increasing the authorized capital, the process is straightforward.
  • Amend the AoA (If Required): If the AoA lacks this provision, it must be amended under Section 14 of the Companies Act, 2013, before altering the capital structure.
• Hold a Board Meeting:
  • Issue Notice: Notify all directors at least 7 days in advance with the meeting agenda.
  • Board Resolution: Pass a resolution to convene an Extraordinary General Meeting (EGM) and approve the proposed increase in authorized share capital.
  • Issue EGM Notice: Shareholders, directors, and auditors must receive at least 21 days’ notice unless 95% of voting members consent to a shorter notice period.

• Hold an Extraordinary General Meeting (EGM) (If required):
  • Present the Proposal: The agenda to increase authorized share capital is formally introduced.
  • Voting Process: Shareholders vote in accordance with the notice provisions.
  • Resolution Approval: Upon obtaining the required approval, the capital increase is authorized.

• Regulatory Filings with the ROC : We needed to check If the articles require shareholder approval, conduct an EGM and pass an Ordinary Resolution or Special Resolution as per the AOA.

Filing Form SH-7 for Capital Increase with ROC (MCA Portal):

• • We require to file Form SH-7 within 30 days of passing the resolution.  Details Required: Company CIN, Type of resolution, Meeting date, Original & revised authorized share capital details, Stamp duty fees details, Digital signatures and DINs
  • With the Following Attachments:
    • Certified copy of the Board Resolution
    • Shareholder’s Resolution (if applicable)
    • Amended MOA (Memorandum of Association)
    • Updated MoA and AoA, Any other optional documents (if required)
  • After completion of SH-7: Mandatory Requirement: Payment of e-stamp duty for the increased authorized share capital via the MCA portal.
• Post-Approval Compliance:
  • Update MoA & AoA: Ensure all company records and documents reflect the new capital structure.
  • Share Allotment: With the authorized share capital increased, the company can issue additional equity shares to existing or new shareholders, thereby infusing funds into the business.
• Registrar of Companies (ROC) Approval : The ROC verifies the documents and, if found in order, updates the company’s Master Data to reflect the increased authorised share capital.
• Issue of New Shares (If Required) : Once the authorised share capital is increased, the company can allot additional shares by passing a separate Board Resolution and filing Form PAS-3 for share allotment.

Penalties for Non-Compliance with Authorised Capital Increase Procedures

The Companies Act, 2013, under Sections 61 and 65, governs the increase in authorised capital. While these sections outline the process, penalties for non-compliance are covered under Section 450 of the Act.

Failure to Comply with Procedural Requirements:

• A penalty of ₹10,000 is imposed on the company and its officers.
• An additional penalty of ₹1,000 per day applies until the issue is resolved.

Late Filing of Form SH-7 (which must be filed within 30 days of the resolution):

• INR 1,000 per day of delay is charged.
• The maximum penalty is capped at INR 25,00,000/-.
• Delays in filing Form SH-7 can result in significant penalties, making timely compliance essential